Forex is an abbreviation for the foreign exchange. For all those who wish to trade between various foreign currencies, Forex is the ultimate option available. Forex is over the counter market that helps the investor in trading stocks by exchange of foreign currencies. Unlike other trade options, Forex trading is entirely different. Foreign exchange is not a quick guide to become rich; trading forex involves learning many basics and principles of finance and foreign exchange. You need to learn about the sources that provide you with real-time forex analysis. Learn about the working principle, important terminology, and benefits of the foreign exchange before you begin the forex trading.
Step 1. Learn Basics
When trading in the stock market, stock tips are effective at guiding the investor to trade stocks in return of money. For Forex trading, you need to learn the basics and the first step to begin is to know the working principle of the forex. It is a marketplace where governments, business houses, banks, and traders exchange the currencies. Investors speculate on the currencies and try to figure out the future trends. Forex is the largest liquid market in the world. The daily turnover exceeds 3.5 trillion. It is over the counter marketplace and different banks quote different rates for the exchange of currency pairs.
Step 2. Terminology
Forex marketplace is active 24 hours a day for 5 days a week. New investors will encounter an ample number of terms they will listen for the first time. This will impose difficulty in understanding the basics of the Forex. Terminology is the heart of any investment scheme or trading policy. Learning the terminology is very important in order to begin Forex trading. All the terms indicate a lot about the present state of the Forex market.
Forex trading or in simple words, currencies of any two countries can be exchanged in any part of the world. It is not compulsory to trade in US dollars if you are trading Forex in the USA. Generally, we refer the trade in currencies other than USD using the Cross Rate. Cross rate signifies the rate at which the trade between the two currencies other than US dollars. If the currency of any country is exchanged with US dollars, the publishing agency will not use the term cross rate.
The ratio between the currencies of two countries signifying the relative value is termed an exchange rate.
The capability of the investor to trade between two foreign currencies is governed by the Leverage. The opening account balance is not the limit to the investment capabilities. An investor can exchange more than the available balance and the ration between the exchanged money and available money is generally termed as Leverage.
The leverage available with the investor is governed by the margin of the account. Experts define Margin in Forex as the minimum amount required in the account to exchange the currencies to the available limit. For example, one percent margin and available balance of $100 means that the investor can exchange $10000.
Pip or Points generally refer to the smallest increment by which the currency pairs move. Pip for various currency pairs is different.
Different banks offer different exchange rates and in order to understand this difference experts use the term Spread. It is the ratio between the quoted price and the original price.
The price quoted by the market for the users to purchase the foreign exchange pairs is known as the Ask Price.
If the investor wishes to sell the forex pairs to the market, the price is termed as Bid Price.
Step 3. Forex Pairs
In order to trade between the foreign currencies, you need to understand the terminology or abbreviations used by the market personnel in order to denote various currency pairs. The investor also needs to know about the common pairs of the foreign currencies exchanged globally. Generally, the following foreign currencies form the exchange pairs- USD – The US Dollar, EUR – The Euro, JPY – The Japanese Yen, GBP – The British Pound, CHF – The Swiss Franc, CAD – The Canadian Dollar, AUD – The Australian Dollar, and NZD – The New Zealand Dollar.
Step 4. Sources Of Forex Analysis
Once the investor is aware of the basics and terminology, a beginner needs to learn about various sources, which will provide him with the latest news and updates. Forex market is dynamic and changes at a high pace. Various news channels and online forums will provide you with last second updates and suitable investment options. The traditional newsletters and the modern real-time feed provide correct and effective forex analysis.
Being updated and aware are two main aspects of the forex market. Make use of the data available on websites, through TV channels giving minute-to-minute updates for 24 hours continuously, economic calendars that record all economic events and newspapers providing expert reviews to obtain maximum benefit from foreign trading. News sources provide you with the opportunity to be in the long race with the skills of the fastest jockey.
The Bottom Line
Forex trading is not the same as trading stocks. The two trading options are as different as day and night. The government, business houses, banks and other investors in order to exchange the currencies in order to expand the global investment opportunities, adopt this trading option. The conventional stock tips will not benefit the beginner in learning the Forex trade. The market of Forex trade works on speculations and market analysis. Start with the terminology and keep yourself updated through various sources to begin the journey of Forex trade.
Foreign exchange market, commonly known as forex market, is a highly volatile market and risks losing his capital. Therefore, one should tread with caution and only invest with the money that one can afford to lose and not get affected to lead a normal life. One should never engage in rumors and only invest after researching the market properly.