Forex: The Keep It Simple Stupid Guide

source: Jim Wilson

A wonderful way to diversify your investment portfolio is to learn forex trading. Many new investors have discovered the world of foreign exchange trading to be an exciting new challenge. One that is filled with rewards that are beyond what they were achieving as stock traders. Currency forex trading is a great way to branch out into new investments. Experience a completely new world of investing by stepping outside of the chaotic domestic economy.

The unique thing about the forex market is that it never closes, if you feel like trading at 2am it's not a problem. Unlike with other markets, such as the stock exchange, you can continue dealing with the currency trading market without worries over it closing at the end of the day. Websites give you 24-hour access to monitor what has been happening in the world currency markets at anytime. Through these sites you are able to learn all the basics about the market.

The websites will include tools and tips to guide you through the beginning steps of trading. This is a clear advantage because you can hone your trading skills before laying down your own money in the market.

When you think of it, the forex firms are training you to become skilled at trading for free by providing guidance, demos and news at no additonal cost. In a short while you will start feeling confident in trading and investing in forex. It only takes about $300 to start getting some good returns.

Learning forex does not require that you have a degree in economics or that you study the markets for years. The forex trading websites have made it easier for you to become successful. Forex brokers will give you access to the market for your currency trading.

Just like stock brokers, they can provide you accurate information and advice on how to deal with Forex trading strategies. Advice includes all the aspects of the Forex trading market which extends to research approaches and technical analysis to improve the member�s trading performance. Naturally, because this market has apparently been providing a great return on investment, large financial institutions have been proactively monopolizing the market.

However, with the trading firms, small-time individuals also have the opportunity to earn money through Forex trading brokers. As I mentioned earlier, the online firms have been providing powerful website tools to become familiar with the whole idea of the currency market.

Your choice of Forex trading broker will largely depend on your need in the trading market. Many brokerage sites will provide trading simulators and expert advice as well as research and analysis designed for first time traders. Furthermore, these websites typically provide experienced online Forex traders who offer in-depth advice to forex traders of all levels. All of these tools are available to beginners to try out.

You really can earn money by taking the time to learn forex trading. The availability of investment simulators and 24-hour customer support enables new investors to learn quickly. Not only can you be trading in no time, you will also be showing a tidy profit. Start researching forex trading. You might be shocked to see how many large companies are involved.

Currency Exchange Terms Every Forex Trader Should Know

Before jumping into the forex market, you need to arm yourself with some terminology that will be used in any course or software on this subject. The following set of terms were put together with the idea of providing the novice forex trader with the fundamental concepts of the forex trading business. While they sound technical, most are easy to understand and apply.

Let us begin with the instruments that are traded in the forex markets. Currencies are traded in pairs so the instrument will always be in this double denomination. The reason for this is simple; the basis of forex currency trading is to exchange one currency for another. So if the pair is the Euro and the US Dollar, and the forex trader is taking a long position or buying the Euro in hopes that it will appreciate, effectively the trader is also selling US Dollars to buy the Euros. The most widely traded pairs are the Great Britain Pound and the US Dollar (indicated as GBP/USD), the Euro and the US Dollar (the EUR/USD pair), the Aussie Dollar and the US Dollar (AUD/USD pair), the USD and the Japanese Yen (USD/JPY pair), and the Canadian Dollar and the USD (USD/CAD pair). These pairs account for well over 80% of the total volume of the trading in the forex market. The advantage to trading in these currency pairs is that they are highly liquid and allow the investor to convert their portfolio to cash very quickly to realize a profit.

In every pair, the first currency is called the base currency, over which the second one is countered to imply the price of the pair, or commonly referred to as the "cross currency". The second is therefore called the quote currency and the pair price is recorded in terms of the units of the quote currency required to buy one unit of the base currency. Thus, assuming the price of the GBP/USD pair is 1.5, this implies that 1.5 USD will buy 1 GBP.

Every pair is quoted in terms of a bid ask spread. The bid price is the rate at which your forex broker bids to buy the currency at, while the ask price is the rate the forex broker is asking to sell the currency to the forex trader. The bid price will always be less than the ask price and the forex trader will buy at the ask price and sell at the bid price. The bid ask price will be quoted as: GBP/USD 1.532/5, meaning the bid price is 1.532 and the ask price is 1.535.

A pip price interest point), as it is commonly called, is the smallest incremental change a currency pair will experience, for instance, a change in the GBP/USD price from 1.532 to 1.542 is a change of 10 pips. A trading margin is a deposit which is a minimum amount or a small percentage of your traded amount that you have to put up. The remaining amount is supplied by your broker. This amount can vary from 1% to 0.25%, also referred to as 100:1 and 400:1. Most often, forex brokers will offer 100:1 or 200:1 to most clients. This is risky but enables the trader to leverage a large amount that he or she would not otherwise have access to.

Finally, a margin call can happen when the forex trader allows the balance in the trading account to go below the margin deposit percentage agreed upon with the forex broker. The broker will automatically sell your long positions or buy your short positions and clear the entire trading account, returning the margin amount to the trader to protect the trader from losing more money than they have.

source: Andrew Daigle