Forex Basic 

Foreign exchange (Forex or FX) is the largest financial market and most liquid financial instrument in the world with a daily turnover of over $2.0 trillion.. Forex trading is the simultaneous buying of one currency and selling of another. Currencies are traded through a broker or dealer and are traded in pairs; for example the Euro and the US dollar (EUR/USD) or the US dollar and the Japanese Yen (USD/JPY).

This kind of trading is often very confusing to people because they are not buying anything physical. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the country's economy.

Unlike other financial markets, the foreign exchange market has no physical location and no central exchange. The Forex market operates 24 hours a day through an electronic network of banks, corporations and individual traders. Forex trading begins every day in Sydney, then moves to Tokyo, followed by London and then New York. The major market makers, or dealers, consist of the commercial and investment banks, the exchange traded futures, and registered futures commission merchants.

Foreign Exchange Prices
Foreign exchange markets and prices are mainly influenced by international trade flows and investment flows. The FX markets are also influenced, but to a lesser extent, by the same factors that influence the equity and bond markets: economic and political conditions especially interest rates, inflation, and political instability. Those factors usually have only a short-term impact, which makes Forex attractive as it offers some of the diversification necessary to protect against adverse movements in the equity and bond markets.

Currencies are usually quoted to four decimal places, such as the GBP/USD trading at 1.77100/1.77120, with the last decimal place referred to as a point or "pip". A pip for most currencies is 0.0001 of an exchange rate; the one exception is the USD/JPY quote in which each pip is equal to 0.01.

Buying/Selling
First, you should determine whether you want to buy or sell.

• If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: Long = Buy = Ask.

• If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = Sell = Bid.

Bid/Ask Spread

All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.

• The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price in which you the trader will sell.

• The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price in which you the trader will buy.

The difference between the bid and the ask price is popularly know as the Spread.

 

 

 

 

 

 

 

On this EUR/USD quote, the bid price is 1.36882 and the ask price is 1.36900. Look at how this broker makes it so easy for you to trade away your money. If you want to sell EUR, you click "Sell" and you will sell Euros at 1.36882. If you want to buy EUR, you click "Buy" and you will buy Euros at 1.36900.

Rollover/Interest Rate

For positions open at 5pm EST, there is a daily rollover interest rate that a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure it is closed at 5pm EST, the established end of the market day.

Since every currency trade involves borrowing one currency to buy another, interest rollover charges are an inherent part of FX trading. Interest is paid on the currency that is borrowed, and earned on the one that is purchased. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive and the client will earn funds as a result.

I don't have enough money to buy $10,000 EUR. Can I still trade?
Yes, You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 positions with $20 or $100 (depend on laverage). You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.

For Example:
You open 1 lot ($100,000) for buying the Pound with a 0.2% margin (laverage 1:500) at the price of 1.65500 and wait for the exchange rate to climb. This means you now control $100,000 worth of British Pound with $200. Your predictions come true and you decide to sell. You close the position at 1.66005 You earn 50,5 pips or about $505. (A pip is the smallest price movement available in a currency). So for an initial capital investment of $200, you have made 250% return. Return equals your $505 profit divided by your $200 you risked to trade.

Forex trading with us is done on a margin system, essentially using a free short-term credit allowance used to purchase an amount of currency that greatly exceeds the traders account value.Trading currencies on margin and certain laverage lets you increase your buying power. Here's a simplified example: If you have $2,000 cash in a margin account and choose 1:500 leverage, you could purchase up to $1,000,000 worth of currency-because you only have to post 0.2% of the purchase price as collateral. Another way of saying this is that you have $1,000,000 in buying power.

What is a Margin Call?
In the event that money in your account falls below margin requirements (usable margin), your account will close some or all open positions. This prevents your account from falling into a negative balance, even in a highly volatile, fast moving market.

Let’s say you open a regular Forex account with $2,000. You open 1 lot of the USD/JPY, with a margin requirement of $1000. Usable Margin is the money available to open new positions or sustain trading losses. Since you started with $2,000, your usable margin is $2,000. But when you opened 1 lot, which requires a margin requirement of $1,000, your usable margin is now $1,000.

If your losses exceed your usable margin of $1,000 you will get a margin call.

Make sure you know the difference between usable margin and used margin.

If the equity (the value of your account) falls below your usable margin due to trading losses, you will either have to deposit more money or the system will close your position to limit your risk. As a result, you can never lose more than you deposit.

Laverage Ratio & Margin Percentage
Laverage	Percentage             Margin	Margin 1 Lot        (USD Based)
1 : 1	100 %	USD  100,000
1 : 2	50 %	USD    50,000
1 : 5	20 %	USD    20,000
1 : 10	10 %	USD    10,000
1 : 20	5 %	USD      5,000
1 : 50	2 %	USD      2,000
1 : 100	1 %	USD      1,000
1 : 200	0,5 %	USD         500
1 : 500	0,2 %	USD         200

Although the trading platform automatically does the profit and loss calculation for you in real time, it is important to understand how these equations are derived.

Equations for calculating the major currency pairs:
The equation for EUR/USD, GBP/USD, and AUD/USD [direct currency pairs] is as follows:

        P / L = ( closing rate - opening rate ) x lot size x number of lots
Example : Current Price for EUR/USD is 1.36882/1.36900 , you buy 1 lot (USD 100,000) EUR at 1.36900 and if the price raise up at     1.37508/1.37526, you will sell at 1.37508 then the calculation is :

       (1.37508 - 1.36900) X USD 100,000 X 1 LOT = USD 608 [PROFIT]

The equation for USD/JPY, USD/CHF and USD/CAD [indirect currency pairs] is as follows:

        P / L = ( closing rate - opening rate ) / closing rate x lot size x number of lots

Example : Current Price for USD/JPY  is 100.648/100.668, you buy 1 lot (USD 100,000)  at 100.668 and if the price raise up at 100.850/100.870, you will sell at 100.850 then the calculation is :

       (1.00850 - 1.00668) / 1.00850 X USD 100,000 X 1 LOT = USD 180.46 [PROFIT]

When you choose to trade currencies, you’re choosing greater freedom in your trading. With the ability to trade forex 24 hours a day, 5.5 days a week with extreme liquidity, you participate when you want to, not when the market dictates.The market is able to stay open 24 hours a day, 5.5 days a week, because trading begins with the open in Australia, and flows through the open and close of the major financial trading centers in Asia, Europe, the United States and back again to Australia.

The daily foreign currency trading volume is determined by which markets are open at any point in time. When international market open times overlap, such as when the U.S. and British market are open simultaneously, greater trading volume is seen, resulting in peak trading.

Major Trading Session
Timezone	OPEN	CLOSE
Tokyo Trading Session	00:00 GMT	09:00 GMT
London Trading Session	08:00 GMT	17.00 GMT
New York Trading Session	13:00 GMT	22:00 GMT

The technical analysis is aimed at the fact that there is a certain direction or a chart pattern for the price movement, but not at finding out the reasons of such movements, like complicated business environment, low earnings and level of management and other fundamental factors. Anyone can gain the profit by posing himself in the trend direction, from the point of view of technical analyst. In the uptrend situation you should consider a buy decision, whether if the downtrend occurs you should try to sell. Technical analysts use different patterns in order to create the a price chart that will suit the future market and the price would follow the pattern.

Forex Trader should consider technical analysis as a key factor for success. Technical analysis basic overview is historical market prices analysis for the purpose of predicting price trends or having an adequate picture of prices movement in future. The concept of Forex Technical Analysis is made up of mathematical equations along with other technical applied towards Forex prices. Deep knowledge of the Forex Technical Analysis techniques is required for profitable dealing with Online Forex Market. The traders using technical analysis invest their money thoughtfully and monitor the daily prices movement precisely that lets them reach the profit. You can choose some basic technical indicators offered at our Forex Technical indicators page among lots of other ones. You should keep in mind that theoretical knowledge added to the thoughtful strategy gives the key to good results and positive trading. You shouldn't ever use the methods you understand not clearly. There is always a choice from a number of methods offered, so you can use the one you are good at and invest adequately for successful Forex trading.

The focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment. Several theories prevail as to how currencies should be valued.

Currency prices are a reflection of the balance between supply and demand for currencies. Interest rates and the overall strength of the economy are the two primary factors that affect supply and demand. Economic indicators (for example, GDP, foreign investment and the trade balance) reflect the overall health of an economy. Therefore, they are responsible for the underlying changes in supply and demand for that currency. A tremendous amount of data is released at regular intervals, and some of this data is significant.

Sometimes it happens that two analysts possessing the same data come to different conclusions about the market behavior. Still you should research the fundamental data and find out their best fitting to the style of trading and expectations before getting down to any analysis. Any data making the country tick is considered as fundamental by forex traders. The fundamentals are the combination of certain plans, unpredictable behaviors and unforeseen events found out from the factors like interest rates and the policy of central bank and even natural disasters. That's why it's better to be aware of the affective contributors of all these factors than to all the fundamentals listed.