Forex stands for foreign exchange and is also known as FX. The foreign exchange market, with a daily turnover of nearly $4 trillion is the largest and most liquid financial market in the world. Because the forex market is a global decentralized financial market for the exchange of currencies, various inancial centers around the world act as hubs for trading between a wide range of different types of buyers and sellers 24 hours a day, except weekends. Trading can be done from anywhere in the world with only an internet connection and a computer.
Forex traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey.
In a forex trade, you buy one currency while simultaneously selling another. The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. Trading is done 24 hours a day, 5 days a week. The forex market closes on each Friday at 21:00 GMT and reopens on Sunday at 21:00 GMT. Many believe the best days to trade are Tuesday to Thursday.
What is a Pip?
The most common increment of currencies is the pip (percentage in point). It is equal to 1/100 of 1 percent, or .0001. If the EUR/USD moves from 1.2250 to 1.2251, that is a 1 pip difference. The pip is the last decimal place of a quotation no matter whether four, five, or more decimal places are used. The pip is how profit or loss is measured.
What is a Forex Lot?
A Forex lot is used to measure the amount of a transaction. The value of the deal consists of a certain number of lots. Usually, a standard forex lot is worth US$100. The standard leverage for a lot is a margin of 100 to 1. The lot information usually appears under the forex quotes.
What is Leverage Trading?
Leverage trading, or trading on margin, means you aren't required to put up the full value of the position. There is more leverage in forex trading than stocks or futures, up to 100 times the value of your account. Increased leverage also increases risk.
Which currencies are traded?
While some retail dealers trade exotic currencies, the vast majority of liquid currency pairs involve:
• EUR/USD (euro/dollar)
• USD/JPY (dollar/Japanese yen)
• GBP/USD (British pound/dollar)
• USD/CHF (dollar/Swiss franc)
The three most common commodity pairs are:
• AUD/USD (Australian dollar/dollar)
• USD/CAD (dollar/Canadian dollar)
• NZD/USD (New Zealand dollar/dollar)
What is Carry Trading?
Carry is the most popular trade in the currency market. It involves taking advantage of the interest rate differential between two currencies. As an example, suppose you buy AUD (go long) and sell JPY (go short) and AUD pays an annual interest of 4.5% while owing JPY means that you will have to pay an annual interest of let's say 0.1%. The net annual return that you will get will be 4.5 minus 0.1, a 4.4% profit.
What are Forex Robots?
Also known as expert advisors (EA's) and automated trading software, forex robots are automated systems that trade the forex market for you. Any automated system must have a stop loss feature to sell the currency if falls bellow a certain value. Another good thing to have is an anti-loss feature which enables the trader to get out of a position in case the trend reverses.
Does Practice Forex Trading Exist?
A number of forex brokers offer practice trading accounts that use real market values yet with play money. This is a great way to get forex training.