Understanding Bid & Ask

A Bid is what someone is willing to pay for an asset. The Ask, or offer, is what someone is willing to accept to sell an asset. As a Forex trader, you can Buy at the Ask and Sell at the Bid.

Understanding the Forex exchange quote system is essential to Forex trading. You need to remember that the first currency listed in the symbol is the base currency, and the quote is the base currency in terms of the second currency in the symbol. Major currency pairs are EUR/USD, GBP/USD, USD/JPY, and USD/CHF.

Placing a Trade

Placing a trade in the Forex market is simple. The mechanics of a trade are virtually identical to those found in the markets you are trading now. A Forex trade is a trade in which one currency is valued against another.

Symbols to Trade
Forex Symbol Currency Pairs Terminology
EURUSD Euro / U.S. Dollar Euro
USDJPY U.S. Dollar / Japanese Yen Dollar-Yen
GBPUSD British Pound / U.S. Dollar Sterling
USDCHF U.S. Dollar / Swiss Franc Dollar-Swiss
USDCAD U.S. Dollar / Canadian Dollar Dollar-Canada
AUDUSD Australian Dollar / U.S. Dollar Aussie
EURGBP Euro / British Pound Euro-Sterling
EURJPY Euro / Japanese Yen Euro-Yen
EURCHF Euro / Swiss Franc Euro-Swiss
GBPJPY British Pound / Japanese Yen Sterling-Yen
The symbol for each Forex contract is based on the two currencies:
EURUSD = Euro Dollar vs. US Dollar.

Also, each Forex contract is a price for the first currency in the symbol name, quoted in the second currency in the symbol name. In the case of the Euro vs. US Dollar, where the exchange rate is approximately $1.30, it would take USD 1.30 to purchase 1.00 Euro. Each Forex contract covers a fixed number of units of the first symbol in the symbol name, usually 100,000.

Forex exchange rate prices move in fixed minimum price movements called pips. A pip is the minimum price move an exchange rate can make.

Closing out a Position
An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. Any profits and losses will exist on paper only and will be reflected in your margin account. To close out your position, you conduct an equal and opposite trade in the same currency pair.

For example, if you have bought (“gone long”) one lot of EURUSD (at the prevailing offer price) you can close out that position by subsequently selling one EURUSD lot (at the prevailing bid price).

Forex Introduction : Benefits of Trading Forex

ZERO Commissions
When trading Forex with other trader like TradeStation, you pay NO commissions and NO data exchange fees. The cost of trading Forex is determined by the amount derived by the dealers and other third parties from the Bid-Ask spread.

24 Hour Market Action
The Forex currency market is a seamless 24-hour market.

Leverage
Forex trading often allows borrowing leverage up to 100 times your account value. Remember that while leverage can help build profits quickly, it can also produce large, catastrophic losses.

High Liquidity
The Forex market, with an average trading volume of over $1.3 trillion per day, is the most liquid market in the world. This means that a trader can usually enter or exit the market at will in almost any market condition usually without regard to trade size limitations.

Forex Introduction : Interbank

The term INTERBANK discussed in FX terminology simply means ‘between banks and large institutions’ where information is exchanged about the current rate at which their clients or they could buy or sell a currency. However, the term ‘Interbank’ today also means anybody who is prepared to buy or sell a currency. Interbank also implies that Forex is not traded on an exchange like equities and futures. The quoted prices for a Forex are based on information from the top banks and large institutions.

Forex Introduction : The Players

There are four primary groups that trade the Forex market:

First, the Novice or Retail Traders – these are part-time, non-professional traders who are speculating on market direction – not hedging, that is, not using these markets as part of other international business dealings.

Second, the Dealers – these are the market makers, setting prices and putting together trades.

The third group, the Institutional Traders, work in banks or government agencies. They trade huge amounts of money and the size of their trades moves the markets. These traders are often trading to settle accounts for import/export and other actual international business dealings.

Last, are the Advanced Traders. This group comprises professional full-time traders, people from all across the world, sitting in smaller investment firms, offices, or even their homes. Again, these traders are generally speculating on market direction – not hedging.

Forex Introduction : Market Overview

Forex or FX, is an abbreviation for Foreign Exchange. It is a way of trading exchange rates between two different currencies. Basically, you buy one currency and sell the other for the purpose of investment speculation. The goal is to make a profit when the value or exchange rates of the currencies traded move in your favor.

Forex has more daily volume than any other market in the world. Taking place in the major financial institutions across the globe, the Forex market is open 24 hours a day. Over 90% of all currencies are traded against the US Dollar (USD). The next most-traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc (CHF).

Forex Tips

Here are my tips if you want to play forex trading:

• Please, do some exercise or practice before you plunge in to a real investment.
• Never invest more than you can afford to lose - you will see this almost on every site and e-book, but think about it, allow some money for investment and don't get into this madness.
• When you get your target profit, don’t try to push too hard of your self and want more.
• Just Stop! Sometimes luck did not come in the second try, beside at this time your emotion is higher than your logical.
• Don't be greedy.
• Exit stop loss is important, do not trade without exit stop loss.

Venturing Into Non-Dollar Currencies

Although it is highly advisable for American investors not to rely too much on the domestic market, any investments in non-dollar currencies entail exchange-rate risks. Nonetheless, these risks can be managed and even turned into opportunities. Read on to learn about how to manage the risk in foreign investments.Essential Diversification – But At a Price The positive side of foreign investments is that they are an important and often essential part of portfolio diversification. Making foreign investments, however, does not mean that the investor is speculating in foreign currencies, although the risk may still be substantial.

After all, a low American dollar, for example, is bound to rise at some point, which will substantially reduce the value of money coming back into the U.S. On the other hand, a high U.S. dollar means the exact opposite to non-American investors because they will be looking to take their money out of the U.S. and return it to their home countries, where it will be more valuable. Currency FluctuationsFor example, in early 2000, the dollar was worth 1.25 euros, but by the end of 2004, it was worth only 0.73 euros. During this period, foreigners investing in America saw the effective value of their investments decline by 40%.

Then there is the issue of yen loans. For years, the incredibly low Japanese interest rates encouraged people to borrow yen to invest elsewhere. However, if the yen were to rise substantially before such a loan is repaid, the borrower could be in trouble. The gains from low interest rates can rapidly be wiped out and worse. In fact, many Austrians took out yen loans in the '90s and some of them wound up with losses of up to 50%, as interest rates moved substantially over time.