The foreign exchange market is also known as the FX market, and the
forex market. Trading that takes place between two counties with
different currencies is the basis for the fx market and the background of
the trading in this market. The forex market is over thirty years old,
established in the early 1970's. The forex market is one that is not based
on any one business or investing in any one business, but the trading
and selling of currencies.
The difference between the stock market and the forex market is the
vast trading that occurs on the forex market. There is millions and
millions that are traded daily on the forex market, almost two trillion
dollars is traded daily. The amount is much higher than the money
traded on the daily stock market of any country. The forex market is one
that involves governments, banks, financial institutions and those similar
types of institutions from other countries. The
What is traded, bought and sold on the forex market is something that
can easily be liquidated, meaning it can be turned back to cash fast, or
often times it is actually going to be cash. From one currency to
another, the availability of cash in the forex market is something that
can happen fast for any investor from any country.
The difference between the stock market and the forex market is that
the forex market is global, worldwide. The stock market is something
that takes place only within a country. The stock market is based on
businesses and products that are within a country, and the forex market
takes that a step further to include any country.
The stock market has set business hours. Generally, this is going to
follow the business day, and will be closed on banking holidays and
weekends. The forex market is one that is open generally twenty four
hours a day because the vast number of countries that are involved in
forex trading, buying and selling are located in so many different times
zones. As one market is opening, another countries market is closing.
This is the continual method of how the forex market trading occurs.
The stock market in any country is going to be based on only that
countries currency, say for example the Japanese yen, and the Japanese
stock market, or the United States stock market and the dollar.
However, in the forex market, you are involved with many types of
countries, and many currencies. You will find references to a variety of
currencies, and this is a big difference between the stock market and
the forex market.
Forex trading uses currency and stock markets from a variety of
countries to create a trading market where millions and millions are
traded and exchanged daily. This market is similar to the stock market,
as people buy and sell, but the market and the over all results are much
much larger. Those involved in the forex trading markets include the
Deutsche bank, UBS, Citigroup, and others such as HSBC, Braclays,
Merrill Lynch, JP Morgan Chase, and still others such as Goldman Sachs,
ABN Amro, Morgan Stanley, and so on.
To get involved in the forex trading markets, contacting any of these
large broker assistance firms is going to be in your best interest. Sure,
anyone can get involved in the forex market, but it does take time to
learn about what is hot, what is not, and just where you should place
your money at this time.
International banks are the markets biggest users on the forex markets,
as they have millions of dollars to invest daily, to earn interest and this
is just one method of how banks make money on the money you save in
their bank. Think about the bank that you deal with all the time. Do you
know if you can go there, and obtain money from 'another' country if
you are heading out on vacation? If not, that bank is most likely not
involved in forex trading. If you have to know if your bank is involved in
forex trading, you can ask any manager or you can look at the financial
information sheets that banks are to report to the public on a quarterly
If you are new to the forex market, it is important to realize there is no
one person or one bank that controls all the trades that occur in the
forex markets. Various currencies are traded, and will originate from
anywhere in the world. The currencies that are most often traded in the
forex markets include those of the US dollar, the Eurozone euro, the
Japanese yen, the British pound sterling and the Swiss franc as well as
the Australian dollar. These are just a few of the currencies that are
traded on the forex markets, with many other counties currencies to be
included as well. The main trading centers for the forex trading markets
are located in Tokyo, New York and in London but with other smaller
trading centers located thought out the world as well.
If you are interested in trading Forex, there are plenty of places that you
can go for great information. Forex for beginners is usually very easy to
learn and can be a great way to invest. If you are beginner and looking
to trade Forex, here are some tips.
There are tons of great places to learn Forex for beginners. Most Forex
brokers have their own tutorials or even an ecourse dedicated to teach
Forex to beginners. If you are just starting to look at Forex as a trading
option, take a look at the following resources for Forex beginners.
Forex stands for foreign exchange. Forex trades currency throughout
the world 24 hours a day. Forex is a great way to trade from home
because there is no central office and there are plenty of brokers
offering their member traders great software that can run and trade off
of their home computer.
It is easy to invest in Forex if you are a beginner. You can open an
account with a small amount of funds. Many Forex brokers allow
beginners to trade with an account of only $250. For many Forex
traders, you don’t even have to trade real money to check out a brokers
system or to see if you like investing with Forex. Many brokers allow
you to join their simulation trading platform, where you can trade in real
time, except without real money. This way you can get the hang of it,
before you invest a dime. If you are looking for a new investment
vehicle take a look at trading Forex for beginners.
You can trade Forex from home with relative ease. Trading Forex from
home is one of the most popular ways day traders and small investors
are able to reach their investment goals from the privacy and comfort of
their own home. If you are interested in trading Forex from home, here
are some tips.
Trading Forex from home is incredibly simple. There are plenty of
brokers that enable you to trade in real time with great features.
Finding a Forex broker is relatively simple, however you should put lots
of thought into which features you would like, the information they
provide their members and the ease of use of their trading software.
Trading Forex from home is relatively easy once you have your
computer set up and a broker picked out. Before you start to trade
Forex with actual money, it is important to know all the ins and outs of
trading Forex as well as how to conduct research and use your brokers
Forex trading software. Many brokers allow you to try simulation
trading. A simulation trading environment is where you can trade in real
time foreign currencies with the actual software and features. The only
difference between simulation and real trading is that with simulation
software you don’t have trade real money. This can be an excellent tool
to learn how to trade Forex from home.
Finding information from home regarding Forex is also very easy with
the help of Forex forums, broker trading resources and Forex charts.
Many investors use the Forex forums to find out about new tools, spot
trends in the market and hear commentary on new products or
forecasts. You can also find loads of information at your broker’s site.
Most brokers usually offer great charts to track currencies and plenty of
articles that can fill you in on information that can help you trade. So
follow the above suggestions to trade Forex from home.
Technical Analysis is the study of price movement. You can use price
charts to track the history of price movement and attempt to anticipate
which way prices will go in the future.
Online forex brokers provide you with many different tools that are used
in technical analysis. Some of the most common are listed below.
Bollinger Bands are used to measure market volatility.
They consist of three lines:
1. A simple moving average in the middle.
2. An upper band which indicates the simple moving
average plus 2 standard deviations.
2. A lower band which indicates the simple moving
average minus 2 standard deviations.
When market volatility is high, the bands spread apart.
When volatility is low, they come together.
The Bollinger Bounce. Most of the time, the middle band
stay in between the outer bands. Think of the outer bands
as the border patrol. When the middle brand approaches one
of the border guards, it gets bounced away and back towards
the middle. Hence the name Bollinger Bounce. This is useful
to know because if you see the middle band approaching an
outer band, there's a good chance it will bounce off.
This strategy works best when prices are fluctuating and there
are no clear trends.
A good way to spot a trend early is the Bollinger Squeeze.
When the bands squeeze close together, it often means that a
breakout is about to occur. If the middle band breaks through
either the top or lower band, the trend will usually continue
to go in that direction.
Parabolic SAR (Stop And Reversal)
The Parabolic SAR indicator is used to spot trend reversals.
It is perhaps the easiest indicator to read, Dots are placed on
the chart in positions either above or below the candles (the
formula that calculates where the dots go is too complicated
to get into).
Dots above the candles are a signal to sell.
Dots below the candles are a signal to buy.
Parabolic SAR works best when there are clear upward or downward
trends. It does not work well when price movement is small.
Stochastics is an indicator that is used to measure overbought and
oversold conditions in the market. It consists of a scale from 0-100.
As the stochastics lines are above 80 it means that the market is
overbought and a downward trend could be forming. When the lines fall
below 20 it means the market is oversold and an upward trend may be
Stochastics are useful in determining when to lock in profits and when
to issue buy or sell orders. But you should never rely on only one
indicator. Combine several and adjust them to your trading strategy.
What do Japanese candlesticks have to do with trading forex? A whole
Originally created in Japan (as the name implies) several centuries ago
to trade rice, candle charts are used by thousands of traders to track
Most people find candle charts much easier to read than standard bar
charts, and they have become incredibly popular. Most forex charts you
see are japanese candlesticks.
Candle charts are formed using the opening and closing prices, as well
as the high and the low.
If the price closes higher than it opened, a hollow candle
is drawn (usually drawn in white or green in color).
If the price closes lower than it opened, a filled candle
is drawn (usually drawn in black or red in color).
Most online brokers I've seen use the green/red color scheme rather
than the more traditional white/black. Trends are easily spotted even by
newcomers as green candles signify price increases while red indicates
Any smart trader knows that in order to be successful they must be able
to analyze the market and predict price movement. This is true whether
you trade in stocks, bonds, commodities, currency, or any other for of
Analysis can be done in two different ways: fundamental analysis
and technical analysis.
Technical analysis is the study of prices. The goal is to analyze the
history of price movement in an effort to predict future prices.
Fundamental analysis is the study of a nation's overall economic health.
I like to think of this as "Big Picture" analysis. The idea is that the
strength of a nation's economy will affect the supply and demand for its
currency, which will in turn affect the price of the currency.
For example, let's assume that the US economy is in a major upswing.
Since the economy is strong, the value of the dollar will be expected
to rise and currency traders will invest heavily in the dollar. This
bullish behavior becomes a self-fulfilling prophecy and the dollar
rises in value.
That's a pretty simple concept, but judging the health of a nation's
economy is no easy task. There are many factors to consider, and two
traders may look at the same figures and interpret the data differently.
Fundamental analysts look at various economic indicators for signs of
an economies strength. Some of the indicators they analyze are the
interest rate, unemployment rate, consumer price index, and gross
domestic product (GDP).
These reports are released regularly by various government agencies
and non-government entities. You should find the latest schedule of
upcoming releases and put them on your calendar. Keep an eye on
them for a few months and see what effect they have on currency
One thing to keep in mind: it is not always the numbers contained in a
report that have the greatest impact, but rather the relation of the
numbers compared to what was forecasted.
In other words, a rise in interest rates may not have a significant
impact if forecasters were expecting it. But if they were expecting
interest rates to remain steady and there was an unexpected increase,
there may be a large impact on currency prices.
A major disadvantage of fundamental analysis is that it can be a little
too "big picture". It is great for predicting overall economic growth
and price changes, but it doesn't offer enough details to target specific
entry and exit points. This is where technical analysis comes in.
Reading Forex Quotes
To a newcomer in the world of trading, forex quotes can be confusing.
But they are actually quite simple to read.
Let's look at an example of what a foreign exchange rate quote looks
EUR/USD = 1.2526
Seems simple enough, right? This example shows the foreign exchange
rate between the Euro and the US Dollar.
It helps to remember that in any forex quote, there will always be two
currencies quoted. This is because when you make a trade on the
foreign exchange you are in effect buying one currency and selling a
second currency at the same time.
When reading forex quotes, the first currency listed is called the base
currency. The second currency listed is called the quote currency. Forex
quotes show us the price relationship between two currencies.
The exchange rate tells you how many units of the quote currency you
have to pay in order to get one unit of the base currency.
In the example above, the base currency is the Euro and the quote
currency is the US dollar. The price quote tells us how each currency is
trading relative to the other. In order to buy one unit of Euros you will
have to sell 1.2526 units of US Dollars.
Still with me? Ok, just one more thing to add to our example: the
There are no commissions charged on any trades placed in the forex
market. But brokers do get paid for their work through the bid/ask
Let's add the spread to our example and I'll explain:
EUR/USD = 1.2526/1.2528
Or, this can be simplified to:
EUR/USD = 1.2526/8
Brokers make their money by selling currencies at a slightly higher rate
than they buy them. This is perfectly legal and all brokers do it, though
the amount of the spread can vary.
As a trader, you will buy the at bid price, which is the first price quoted.
You will sell at the ask price, which is the second price. The difference
between the prices is called the spread, which is retained by the broker
as their profit on the trade.
In our example, you would buy at 1.2526 and sell at
1.2528. The 0.0002 (2 pips) would go to the broker as
payment for executing the trade.
The bid/ask spread is a simple and straightforward way to calculate
trading fees and expenses.
To forex traders, everything revolves around pips.
"I'm up 35 pips for the day."
"I made a 127 pip profit on my last trade."
That's great, but what's a pip?
Pip is short for "percentage in point" and you may sometimes hear
people refer to pips as points.
Put simply, a pip is the smallest unit of price for a currency. It's the last
decimal point in every exchange rate or currency pair.
For most currencies its 0.0001. So if you bought USD/CHF 1.2475 and
sold at 1.2489 you made 14 pips.
One common exception is USD/JPY. In this currency pair there are only
two decimal places so a pip is equal to 0.01.
The reason pips are so important is because they are the basis for
calculating profit or loss.
With all these different currency pairs to deal with and with prices
fluctuating all the time, how do you know the value of a pip?
It's a simple calculation. For currency pairs in
which USD is the base currency, just divide a pip
(usually 0.0001) by the exchange rate.
For currency pairs in which USD is the quote currency,
its even simpler. The pip value is always one pip
(for example, 0.0001).
So in our example above, when the exchange rate for
USD.CHF is 1.2489:
0.0001 / 1.2489 = 0.0000800704
That's a pretty tiny number. But remember that in forex trading you are
able to leverage small sums of money to move large quantities of
In other words, you can use leverage to make big profits off of that tiny
Let's say your broker allows you to trade with leverage of 100:1. This
means that in order to buy a standard lot of $100,000, you only need
to put up $1,000.
You can see how trading in larger lots affects the pip value, and
therefore your profit or loss:
If you are only trading $1,000 in currency, the pip value is calculated as
0.0000800704 X 1000 = $0.08 per pip.
The price would have to go up by a whole lot of pips in order to make a
significant profit at that rate.
That 14 pip profit only made you $1.12.
But by using leverage to buy a lot size of $100,000 your profit increases.
0.0000800704 X 100,000 = $8.01 per pip.
That's a profit of $112.14. Now you're talking.
Forex risks are always present when you trade Forex. Just like any
other investment vehicle, Forex trading does have its risks. Here are
some tips and information on the risks inherent in Forex trading as well
as how to minimize some Forex risks.
Forex stands for foreign exchange and Forex is the largest financial
market in the world today with almost 2 trillion dollars worth of daily
trades. Forex is a trading platform that many people can access from
the privacy of their own home. There is no central market for Forex and
you can enjoy 24 hour trading around the world each day.
There are many people that sign up to trade Forex that don’t
understand or take the time to learn how and why to trade Forex.
There are many risks involved in trading any kind of asset, whether it is
stocks, bonds or currencies. If you are interested in trading, make sure
you understand Forex risks.
One of the biggest Forex risks is a leveraged buy. Some Forex
brokerages allow you to hold a certain amount of money in your account
but leverage that amount to up to 200 times its worth. While this can
be good if you are on the winning side of a trade, this can be
devastating if you lose your entire accounts worth plus many times
Many Forex brokers have special features that can limit your risks such
as stop loss and limit orders and no negative balances. If you are
interested in trading Forex, before you start to trade, learn and
understand the Forex risks involved.
Here are some tips that will help you to minimize the risk in your trading
The first Forex trading tip is to always to remember that Forex trading
like any investment is not a sure thing. Just like any type of investment
or investment vehicle there are risks involved. No matter how much you
research your data or how much thought you put into your trading, you
can always lose money.
Another important Forex trading tip is that if you are just starting out,
learn as much as possible about foreign exchange trading. There are
many theories, strategies and tools to help you trade Forex. Learn
which tools are available and how to use them effectively. You shouldn’t
decide to just throw money around into an investment and go with the
flow. Forex trading is not a casino game and you can lose thousands of
dollars of your investment.
One of the most important Forex trading tips is to choose your trading
broker carefully. Don’t just enroll with a trading broker because they
offer you great incentives or have a great web site. Shop around; find a
Forex trading broker that can help you reach your investment goals.
There are plenty of Forex trading brokers and many of them might not
have the resources to help you with your individual investment needs.