Saturday, November 21, 2009

Maximizing Wealth by FOREX

EVERYTHING FOREX

Hey guys


I promised it and here it is. This is the forex page that will facilitate everything forex. The first few blogs will provide basic information on the FOREX market. Now I am a beginner at trading therefore I will only be able to provide general information for now and tips that I learnt from my training.


Most of the help you will receive may come from seasoned traders who I encourage to offer comments and make suggestions.

Of course, it is paramount that the trader (or interested trader) recognize that there are different strategies, techniques and jargons, therefore the information posted on this page, though very helpful, will not be gospel.


WHAT IS FOREX TRADING?

The FOREX opens approximately 7pm EST on Sunday evening and closes Friday at 4pm EST. The market has more buyers than sellers, has more daily volume than any other market in the world, and takes place in major financial institutions across the globe. Forex or forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded in pairs; for example:







 
 
 
 
 
 
 
 
 
BUYING AND SELLING CURRENCY In the forex market, currencies are always priced in pairs and all trades result in the simultaneous buying of one currency and the selling of another. E.g. EUR/USD. The first listed currency is known as the base currency, while the second currency is called the counter or quote currency. The base currency is the “basis” for the buy or the sell. For example, if you buy EUR/USD you have bought Euros (and simultaneously sold US dollars).



The objective of currency trading is to buy the currency that increases in value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock the profit.

EXAMPLE If you think that the Euro will rise relative to the U.S. Dollar you would buy one (or more) lot of the EUR/USD currency pair.

The EUR/USD is trading at 1.3653 when you buy it.

The EUR/USD is trading at 1.3873 when you sell it.

You bought at 1.3653 and sold at 1.3873 for a profit of .0220 or 220 pips.

If you think that the Euro will fall relative to the U.S. Dollar you would sell one lot of the EUR/USD currency pair.

The EUR/USD is trading at 1.3667 when you sell it.

The EUR/USD is trading at 1.3519 when you buy it.

You bought at 1.3667 and sold at 1.3519 for a profit of .0148 or 148 pips.

SOME CUREENCIES: EUR = EUROS, BGP= POUND, CHF= SWISS FRANC, JPY= JAPANESE YEN, AUD=AUSSIE $

PIPS

If the market moves from 1.2253 up to 1.2254 that represents a move of one pip. A pip is the smallest increment a currency pair can move and in the case of the EUR/USD currency pair a pip is worth $10 in a 100K account and is $1 in a mini account. FX is traded in lots, which represent 100,000 units of the base currency. If the EUR/USD is quoted at 1.2253, that means that one Euro is currently worth just over $1.22.


MARKET MAKERS & BROKERS

Market Maker- one who consistently makes two way prices, providing both a bid and an offer. Market makers trade their capital.


Broker – an individual who matches buy and sell orders in return for a commission.


LEVERAGE AND MARGINS

Leverage is about risk. It allows traders to borrow money and use that money to invest in the foreign exchange market. Because of leverage, clients without a huge amount of capital are able to make large investments. Most market makers allow positions to be leveraged up to 100:1. This means that if a trader wanted to buy a “lot” worth $100,000, with 100:1 leverage the trader only has to put up $1,000.

Margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value. Trading platforms have margin management capabilities, which allow for this high leverage. In the event that funds fall below the margin requirements the broker’s dealing desk will close all trading open positions. This prevents client’s account from falling into the negatives.

Therefore, the amount of leverage a market maker gives to a client defines the amount of margin that the client will have to commit in order to take a position in the market. For example, when leverage is 100:5, the “5” in the leverage ratio signifies the amount of capital the customer has invested of his own money, which is also known as the margin.


GETTING INTO THE TRADE/TAKING A POSITION

Traders do not take positions on a currency pair at the exact rate at which the currencies are trading. Instead, there are two rates for the currency pair: the bid rate and the ask rate. • The bid rate is the price at which traders can sell the pair.

• The ask rate is the price at which traders can buy the pair.

This is an example of a currency pair. The ask (buy) rate is higher than the bid (sell) rate and the spread is 3 pips, meaning that if a trader buys this pair, then the sell rate of this pair will have to go up 3 pips in order for the trader to break even.

The ask rate will always be higher than the bid rate. The difference between the bid rate and the ask rate is the spread. The spread is an automatic cost that the trader incurs when making the trade. Because of this spread, traders will take a position they started with a small loss and will need to gain some profit in order to break even. Some information posted in this blog have been adopted from http://www

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