Forex Trading Guide

So, what is Forex Trading? To most people who live outside of the U.S. Forex or Foreign Exchange, is something you are quite familiar with. Whether you are in Europe and switched from your old currency to the Euro or in other parts of the world where the movement of the Euro and Dollar play a part in your daily life. Forex Trading is the trading of one national currency for another. When you travel outside your home country, and you exchange your currency for the local currency you are participating in foreign exchange trading.

How does it work?

fx tradingForex trading works only in pairs, one currency for another. When put on paper this is written in format of EUR/USD (Euro vs U.S. Dollar). You write it in this format because Forex uses symbols or abbreviations for each currency. So, the U.S. Dollar becomes USD, and the Euro EUR, some other examples are; British Pound GBP, Turkish Lira YTL, Japanese Yen JPY, and Australian Dollar becomes AUD. When you write the pairing as EUR/USD you are showing how much of the first currency you will need to buy the second currency. When the exchange rate is 1 USD = 4.55 YTL that means you will need 4.55 Turkish Liras to buy 1 U.S. Dollar.

Most of the pairings usually will move in 50 to 100 pips a day depending on the conditions of the market. PIP is the name for the 4th decimal place in the currency pairing, or 2nd when one of the currencies is the Japanese Yen. The changes in the value of each currency will depend on the market demand for that currency, so, if the demand for USD rises you will need more YTLs to purchase 1 USD.

There are a large number of different Forex instruments that you can use to be able to earn money on the Forex market. A special type of Forex trading is binary currency trading.  Binary currency trading is a way to earn a fixed return on very small fluctuation in the currency markets.

Why should you choose Forex?

As the world’s biggest trading market with around 4 trillion USD in daily volume, Forex is hard to stay away from. The volume is this high because Forex Trading is something that all individuals, businesses and even countries participate in. On top of the vast volume, Forex is appealing because it is accessible to all, you can participate in the market with the smallest amount of funds. As this usually is a commission free trade, you will not have to pay any money except for the pairing costs. The ability to focus on the few currencies you want to trade in can really make this a much easier option compared to stock or binary options trading, where you have to follow a lot more information to make a wise decision. Granted, events in the countries of the currencies will have great effect on its value, so it’s a good idea to stay up to date on the country’s political and economic standing.

Another reason Forex is a beneficial way to go, is the option of Leverage Trading. Leverage Trading is the trades that brokers will let you make on margin, which is an extension of your credit for trading. Say, you are trading on a margin of 10:1, then for every dollar you have invested you can trade 10. This allows for great raise in profits but risks as well.

With a 24-hour market and no directional restrictions you are able to benefit from rise and fall of currency values. These advantages and the insane volume of daily trades makes Forex appetizing for all traders.