Everyone wants to trade in this market. What exactly does Forex mean? It means trading in foreign exchange. You buy one particular country’s currency and sell another currency. For example if you are buying Euros by selling US Dollars, it means you are trading in Forex market. The ratio between Euro and US Dollars keeps changing. When the market is low, you need to buy and when it is high you need to sell. You need to keep a check on the market so as to know when to buy and sell.
The Forex market is the largest of all the financial markets and stock markets put together. It is open for trading all the 7 days, 24 hours a day.The leveraging is about 100 times. Just to give you an example, a trader you invests 1000$ is able to trade for 100,000$. There are mediocre traders as well. The brokers allow these traders to trade as less as 100 dollars. In the past only large financial institutions, Central banks and Government Institutions could trade. But of late, it is possible for simple investors also to be in this business. Forex trading symbols involve 2 currencies. When 2 currencies are involved, trade takes place.
Many software tools are made available to check the technical analysis of the Forex market. The investor needs to be able to read charts, do an analysis of market conditions etc.Let us illustrate this with the help of an example. Suppose a trader has 25,000$ in his current account. He can trade with minimum 1% margin requirement. Presuming you have done your homework and research on the market and you feel that the Euro is going to rise as against the US dollar, let us now understand the mathematics as given below:
Assuming the market quote for Euro-USD is 1.5820/23. You place an order for 1 lot Euros. 1 lot means 100,000. The value now totals to 158,230$. You need to give a marginal deposit of 1,582.30$ with the broker as against 158,230$. Supposing the Euro price rises as compared to the USD, you would be making a profit in this transaction. But if the Euro falls in comparison to the USD, you can still restrict the loss amount. This is when traders place a stop loss order. You could place the stop loss order for 1.5773. This means 50 pips below the order price. You are protected from incurring further losses. This amount equals to only 2% of the equity account.
Simultaneously, you can go ahead a place an order and limit it to 1.5973. This is 150 pips above the order price. If the Euro is able to become stronger as against the USD, you can call it a day and pocket 1500$ as profit for the day.
Author Info: Author is expert forex trader and trading since last few years. He also wrote forex-trading eBook recently. Need more tips? Visit his website.
