Basic Concepts of Trading Forex

The Basic Concepts of Trading Forex

Learning how to trade in a new market is something you have to take from the beginning. like learning a new language you need to have some Vocabulary and understand some basic knowledge about the Basic Concepts of Trading forex

WHAT IS FOREX?

Forex is a commonly used abbreviation for “foreign exchange”. It typically describes the buying and selling of currency in the foreign exchange market, especially by investors and speculators. The familiar expression, “buy low and sell high,” certainly applies to currency trading. A forex trader purchases currencies that are undervalued and sells currencies that are overvalued; just as stock trader purchases stock that is undervalued and sells stock that is overvalued.

it pays to know how to select the right broker for your trading and if you want to trade Forex or Binary. this is what you have to look for. Learn here how and what

Your are as a Trader first and fore mosta client of the brokerage. as such you are able to ask and talk about your trading conditions, rates and requirements. Learn here what to ask for

WHAT ARE THE QUOTING CONVENTIONS OF FOREX?

this is a fundamental and Basic Concepts of Trading forex

3-letter symbols are commonly used to denote currencies such as USD for the US dollar and EUR for the Euro. This means that there are as many codes as there are currencies. this is Important as no one is able to trade with all of them , in the end you will find the currencies you like to trade and most of the time they are also the currencies that you use on a daily basis as the currency of your country.

the USD is the one that is the most traded and pretty much any other currency is set against the USD

CURRENCY	SYMBOL	CURRENCY	SYMBOL

US dollar	USD	Canadian Dollar	CAD
European Euro	EUR	Australian Dollar	AUD
British Pound	GBP	New Zealand Dollar	NZD
Japanese Yen	JPY	Danish Krone	DKK
Swiss Franc	CHF	Hong Kong Dollar	HKD
Singapore Dollar	SGD

CURRENCY PAIRS

Currencies are quoted in pairs, such as EUR/GBP or USD/CHF. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the “basis” for the buy or the sell. For example, if you BUY or “GO LONG ON” EUR/USD you have bought Euros (and simultaneously sold dollars). You would do so in expectation that the euro will appreciate (go up) relative to the US dollar. On the other hand if you thought that there were reasons that demand for dollars would rise compared to the Euro you would SELL or ‘SHORT” EUR/USD (selling Euros for dollars).

the Real Basic Concepts of Trading forex

HOW DO YOU READ A QUOTE?

Because you are always comparing one currency to another, forex is quoted in pairs. This may seem confusing at first, but it is actually pretty straightforward. For example, the EUR/USD at 1.4022 shows how much one euro (EUR) is worth in us dollars (USD).

WHAT IS A LOT?

A lot is the smallest trade size available. Rakuten Securities HK accounts have a lot size of 1,000 units of currency. Account holders can however place trades of different sizes, so long as they are in increments of 1,000 units like, 2,000, 3,000, 15,000, 112,000 etc.

WHAT ARE SPREADS?

Just like in all markets, there are two prices for every currency pair. The difference between these two prices is the spread, or the cost of the trade. In this example, the spread is 2.5 pips. On a Rakuten Securities HK 1K lot size USD-denominated account, a pip on the EUR/USD currency pair is worth US$0.1.

WHAT IS A PIP?

A pip is the unit used to count profit or loss. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. Every point that place moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

WHAT IS LEVERAGE/MARGIN?

As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 20:1 allows you to trade with $1,000 in the market by setting aside only $50 as a security deposit. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account. On the other hand, leverage can significantly increase your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

The specific amount that you are required to put aside to hold a position is referred to as your margin requirement. Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit.

ROLLOVER INTEREST

Traders holding positions for more than one day will receive or pay the interest difference between the two currencies in the pair they are trading. For example, if the current interest rate in the UK is 2.5% and in the US it is 1.7%, then if a trader has bought GBP/USD he will receive rollover interest equivalent to a daily equivalent of the 0.8% difference. If he has sold GBP/USD he will have to pay a similar rate. Though daily interest is tiny, leverage* can make this interest significant.

* Without proper risk management, this high degree of leverage can lead to large losses as well as gains.