What is FOREX?

The Foreign Exchange Market (Forex) is the arena in which a nation’s currency is exchanged for that of another at a mutually agreed rate. It was created in the 1970’s when international trade transitioned from fixed to floating exchange rates, and is now considered to be the largest financial market in the world because of its huge turnover.

Introduction to Forex

All currencies are traded in pairs and each is assigned with an abbreviation. Here are some of them (Table 1):

EUR Euro

USD US Dollar

GBP British Pound

JPY Japanese Yen

CHF Swiss Franc

AUD Australian Dollar

CAD Canadian Dollar

NZD New Zealand Dollar

SGD Singapore Dollar

‘Base’ currency is the first currency in the pair. ‘Quote’ currency, or ‘term’ currency is the second currency in the pair.

USD / JPY = 120.25

Base currency Quote currency Rate

This abbreviation specifies how much you have to pay in the quote currency to obtain one unit of the base currency (in this example, 120.25 Japanese Yen for one US Dollar). The minimum rate fluctuation is called a point or a pip.

Most currencies, except USD/JPY, EUR/JPY, CHF/JPY and GBP/JPY where a pip is 0.01, have 4 digits after the period (a pip is 0.0001), and sometimes they are abbreviated to the last two digits. For example, if EURUSD is traded at 1.2389/1.2391 the quote may be abbreviated to 89/91.

The currency pairs on Forex are quoted as the Bid and Ask (or Offer) prices:

Bid Ask

USD / JPY = 120.25 / 120.28

Bid is the rate at which you can sell the base currency, in our case it’s the US dollar, and buy the quote currency, i.e the Japanese Yen.

Ask ( or Offer) is the rate at which you can buy the base currency, in our case the US dollar, and sell the quote currency, i.e. the Japanese Yen.

Spread is the difference between the Bid price and the Ask price.

Pip is the smallest price increment a currency can make. Also known as a point. e.g. 1 pip = 0.0001 for EUR/USD, and 0.01 for USD/JPY.

Currency Rate is the value of one currency expressed in terms of another. The rate fluctuation depends on numerous factors including the supply and demand on the market and/or open market operations by a government or by a central bank.

1.0 lot size for different currency pairs (Table 2)

Currency 1.0 lot size 1 pip

EURUSD EUR 100,000 0.0001

USDCHF USD 100,000 0.0001

EURUSD EUR 100,000 0.0001

GBPUSD GBP 100,000 0.0001

USDJPY USD 100,000 0.01

AUDUSD AUD 100,000 0.0001

USDCAD USD 100,000 0.0001

EURCHF EUR 100,000 0.0001

EURJPY EUR 100,000 0.01

EURGBP EUR 100,000 0.0001

GBPJPY GBP 100,000 0.01

GBPCHF GBP 100,000 0.0001

EURCAD EUR 100,000 0.0001

NZDUSD NZD 100,000 0.0001

USDSEK USD 100,000 0.0001

USDDKK USD 100,000 0.0001

USDNOK USD 100,000 0.0001

USDSGD USD 100,000 0.0001

USDZAR USD 100,000 0.0001

CHFJPY CHF 100,000 0.01

Spreads & Margins

Alpari (UK)’s mission is to provide innovative Currency Trading technology combined with quality execution, tight spreads and competitive margins.

Margin is the collateral required by Alpari (UK) to open and maintain a position:

*

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+ An open position of less than 3,000,000 USD (3M) nominal value carries a maximum leverage of 1:500.

+ An open position of 3M – 5M USD carries a leverage of 1:500 for the first 3M and a leverage of 1:200 for the remaining 2M.

+ An open position of 5M – 10M USD carries a leverage of 1:500 for the first 3M, a leverage of 1:200 for the next 2M and a leverage of 1:100 for the remaining 5M.

+ For open positions higher than 10M USD, the first 3M carries a leverage of 1:500, the next 2M carries a leverage of 1:200, the next 5M carries a leverage of 1:100. Everything above carries a leverage of 1:33.

For example, a client opens a position of 12 million USD (for example, 120 lots in USDCHF). His margin requirements will be the following:

Nominal value of open position Funds required to open position Maximum leverage offered

First 3 million = 3,000,000 / 500 = 6,000 USD 1:500

Next 2 million = 2,000,000 / 200 = 10,000 USD 1:200

Next 5 million = 5,000,000 / 100 = 50,000 USD 1:100

Remaining 2 million = 2,000,000 / 33 = 60,606 USD 1:33

TOTAL: 12 million = 126,606 USD

Balance is the total financial result of all completed transactions and deposits/withdrawals on the trading account.

Floating Profit/Loss is current profit/loss on open positions calculated at the current prices.

Equity is calculated as balance + floating profit – floating loss.

Free margin means funds on the trading account, which may be used to open a position. It is calculated as equity less necessary margin.

Calculating profit/loss

For example, EUR/USD exchange rate is 1.2505/1.2507 and your leverage is 1:100. You believe that EUR/USD will go up and buy 0.1 lot of EUR/USD at 1.2507 (Ask price) – for the contract size refer to Table 2. As we can see from Table 2, 1.0 lot of EUR/USD is 100,000 EUR, which means that 0.1 lot (our example deal size) is 10,000 EUR.

So, you buy 10,000 EUR and sell 10,000*1.2507=12,507 USD. In fact to fund this position you do not have to have 12,507 USD but only 125.07 USD. The rest of the money (in our example 12,381.93 USD) is leveraged to you by Alpari (UK).

The leverage (or gearing) mechanism allows you to open and hold a position much larger than your trading account value. 1:100 leverage means that when you wish to open a new position, you need to support a deposit 100 times less than the value of the contract you are interested in.

For example, you believe that EUR/USD is moving higher and buy 10,000 EUR and sell 12,507 USD. Assuming you are right and EUR/USD goes up to 1.2599/1.2601 and you decide to close the position: when you close a long position you sell the base currency (10,000 EUR in our example) and buy the quote currency (10,000*1.2599 = 12,599 USD):

Transaction EUR USD

Open a position: buy EUR and sell USD + 10,000 – 12,507

Close a position: sell EUR and buy USD – 10,000 + 12,599

Total: 0 + 92

NB: When you close a short position you buy the base currency and sell the quote currency.

To fund this position you only need 100 EUR (approximately 125 USD) not 10,000 EUR. The profit on this position is 92 pips (1.2599-1.2507=0.0092). A pip or point is a minimal rate fluctuation. For EUR/USD 1 pip is 0.0001 of the price (see Table 2).

This example shows a favourable outcome. If EUR/USD had fallen you would realise a loss and not a profit. This loss will be magnified as a result of leveraging. For example, if you close the position at 1.2419, your loss would be $88. Should you have doubts about your understanding of risks, please consult a qualified financial adviser.

Lot Size is the number of base currency, underlying asset or shares in one lot defined in the contract specifications. For details refer to the Table 2.

Lot is an abstract notion of the amount of base currency, shares or other underlying asset on the trading platform.

Transaction (or deal) size is lot size multiplied by the number of lots.

Long Position is a buy position whereby you profit from an increase in price. In respect of currency pairs: buying the base currency against the quote currency.

Short Position is a sell position whereby you profit from a decrease in price. For currency pairs: selling the base currency against the quote currency.

Completed Transaction consists of two counter deals of the same size (open and close a position): buy then sell or vice versa.

Leverage is the term used to describe margin requirements: the ratio between the collateral and the value of the contract. 1:100 leverage means that you can control $100,000 with only $1,000 (1%).

Rollover / Interest Policy

Foreign exchange trading at Alpari (UK) is dealt on a "Spot" basis only. This means that all trades settle two business days from inception, as per market convention. The settlement date is referred to as the value date. Alpari (UK) does not arrange physical delivery of currencies hence, all positions left open from 10:59:45 p.m. to 10:59:59 p.m. (London time) will be rolled over to a new Value Date.

As a result, positions are subject to a swap charge or credit based on the "Rollover/Interest Policy" webpage.

Please note that since 03 June 2007 Alpari (UK) Limited no longer closes and reopens the positions which are open at 11:00 pm London time. Instead we have introduced a more convenient method of rollover which involves debiting or crediting a customer’s trading account when he/she holds open positions overnight.

The cost of rollover is based on the interest rate differential of the two currencies. Let’s assume that the interest rates in the EU and USA are 4.25% p.a and 3.5% p.a respectively. Every currency trade involves borrowing one currency to buy another. If you have a buy position of 1.0 lot in EUR/USD, then you earn 4.25% on your Euros and borrow USD at 3.5% per year.

In other words:

* If you have a long position (i.e. bought) and the first currency in the currency pair has a higher overnight interest rate than the second currency, then you receive a gain.

* If you have a short position (i.e. sold) and the first currency in the currency pair has a higher overnight interest rate than the second currency, then you lose the difference.

* If you have a long position (i.e. bought) and the first currency in the currency pair has a lower overnight interest rate than the second currency, then you lose the difference.

* If you have a short position (i.e. sold) and the first currency in the currency pair has a lower overnight interest rate than the second currency, then you receive a gain.

Please note that if you open and close a position before 10:59:45 p.m. (London time) you will not be subject to a rollover.

The act of rolling the currency pair over is known as tom.next, which stands for tomorrow and the next day.

NB: When you roll an open position from Wednesday to Thursday, then Monday next week becomes the value date, not Saturday; therefore the rollover charge on a Wednesday evening will be three times the value indicated on the "Rollover/Interest Policy" webpage.

Why trade Forex?

Unlike other financial markets Forex has no physical location, like stock exchanges, for example. It operates through the electronic network of banks, computer terminals or via telephone. The lack of a physical exchange enables Forex to operate on a 24-hour basis, spanning from one time zone to another across the major financial centres (Sydney, Tokyo, Hong Kong, Frankfurt, London, New York etc). In every financial centre there are many dealers, who buy and sell currencies 24 hours a day during the whole business week. Trading begins in the Far East, New Zealand (Wellington), then Sydney, Tokyo, Hong Kong, Singapore, Moscow, Frankfurt-on-Maine, London and ends in New York and Los Angeles. Below there are approximate trading hours for regional markets (London time):

Japan 00:00-06:30

Continental Europe 06:30-13:00

Great Britain 8:30-15:30

USA 14:30-21:30

Forex has some advantages which make it very popular among investors:

* Liquidity. Forex is the largest financial market in the world, with the equivalent of over $3-4 trillion changing hands daily whereas traded volume on the stock markets equates to only 500 billion US dollars.

* Flexibility. Forex is a 24-hour market, which offers a major advantage over other markets, for example, stock exchanges which are only open during regional business hours. You can respond to breaking news immediately if the situation requires it and customise your trading schedule.

* Lower transaction costs. Traditionally there are no commissions or charges on Forex, except for the spread.

* Margin. Our 1:100 leverage (only for deposits below $ 100,000) is a powerful tool. You need to support a deposit of 1,000 US dollars to make a deal with $100,000. Such high leverage combined with rapid rate fluctuations can make this market profitable but at the same time risky: please see Risk Warning below.

Risk Warning

Under margin trading conditions even small market movements may have a great impact on the customer’s trading account. You must consider that if the market moves against you, you may sustain a total loss greater than the funds deposited. You are responsible for all the risks, financial resources you use and for the chosen trading strategy.

richard
http://www.articlesbase.com/currency-trading-articles/intoduction-to-forex-676645.html

You may remember Forex as an elite market open only to major banking institutions and huge corporations. It was in a league above the average person. Well, all that has changed and now small-scale participants like you and I have online access to this profitable and ever-expanding marketplace.

Foreign currency exchange holds many advantages for the average person. It does not require a college degree or any special certification. You can easily purchase a reputable Forex training program online and learn how to proceed with Forex trading strategy from the convenience of your home and at your own pace and schedule. It offers the ultimate in flexibility of any financial alternative for the smaller investor. In this article I will introduce you to the many benefits of Forex.

Foreign currency exchange operates on a 24-hour basis, Monday through Friday. This is a tremendous advantage as opposed to the limited trading hours of the stock and commodities markets. You have immediate access to deals at your convenience. You may trade before or after other work, school, or home-related responsibilities. Where else do you have such incredible freedom combined with such great potential to make money?

A Great Way To Get Started

Forex is an excellent choice for the novice investor who may have a limited amount of capital. There are no brokerage or commission fees to contend with. Your profits are your own. Also there are little or no “slippage” costs. Slippage refers to the cost involved when you open a deal at a higher price than you intended. This happens often in the stock market where there is a time delay while your broker gets around to placing your order. For example, you could send your broker an order to buy stock at $2.50 per share and end up paying $3.25 per share by the time the order is placed. On top of commission fees, this really eats into your profits. You are free from this hassle with Forex. You directly place your own orders to buy and sell. You remain in control of your money and reap all the rewards of your labor. In addition, you usually trade at a small spread. You may have a spread of only 0.03% of your position size. This translates to buying and selling US $10,000 and incurring a 3-point spread, equaling $3.00.

Liquidity is an asset too important to overlook. Forex is by far the most liquid of all trading venues. Trading volume tops the charts at a whopping 50 -100 times greater than with stocks. Due to the enormity of its size, the currency market preserves its liquidity and protects the small-scale trader. There is such an enormous quantity of transactions that this market is virtually impossible to control. A few huge participants cannot manipulate Forex. This protects you by placing you on level ground with those who trade in immense amounts. It is a great leveler between huge corporations and the average individual investor.

Trade In Up Or Down Market

Deals are viable when currency values rise and fall. Forex is a volatile market, meaning it experiences frequent price changes and a high volume of transactions. Opportunities to make money abound and you can cash in on this situation. Volatility measures the maximum return a trader can receive. In the stock market, volatility of the most liquid stocks will hover around 60 to 100. In Forex it is 500, which represents quite an impressive increase. You make profit from volatility and it definitely works in your favor with Forex.

You may be aware of price gaps if you have experience trading in other markets. Gaps occur when prices jump drastically from one level to a higher one without smaller increases along the way. For example, while you are sleeping, a stock may lose $5 per share and you wake up to a loss and a big headache. If you examine Forex charts, you will find that price gaps are a rarity, especially on the charts that record pricing over a longer time period such as either a 4-hour or a daily chart.

Bulls & Bears – Oh My!

Finally, let me mention that currency exchange yields profits in either a bull or bear market. Stocks have the difficulty of providing gains only when stock prices rise. In Forex, you have the bonus of trading a currency when your researched, informed opinion shows that a particular currency will soon drop in value. You can simply trade downward and invest in a rising currency. In a sense, Forex can be thought of as a continual bear market.

The extremely liquid, low-risk, bear market of Forex is the best alternative for a small-scale trader. When you have done your initial investigation and developed a sound Forex trading program and strategy, you will be ready to jump into the fulfillment of your financial goals. Get involved with Forex trading and make your investment in real financial security.

Ferris Malone
http://www.articlesbase.com/finance-articles/forex-trading-the-benefits-of-a-global-market-725377.html

The FOREX market has a vast range of attributes. It is the biggest market you can invest into, and sees 1.9 trillion US dollars of trade every single day, as quoted by a study from the bank of international settlements in 2004. It is composed of these characteristics:

• A thousand three hundred billion US dollar derivative
• Thousand billion US dollars of swaps in FOREX
• Six hundred billion US dollars in spot trading
• Two hundred billion dollars worth of forwarded contracts
• Hundred billion US dollars FOREX options

Another major attribute of Currency Trading is the terms of nature of the participants in trades of different currency. Investors include major banks, centralized banks, multinational organizations, many governments, currency analytical speculators, and then the other financial organizations and markets. The smaller traders are becoming significant in their numbers as well.

Thanks to the huge amounts that are transacted every day on the market, currency trading is a forerunner in innovations of trade. Thanks to the Internet, many new players (smaller traders) are entering the markets every day. So you can even but and sell in the night, when it is day in another part of the world.

To trade using the internet you will need the right software to enable you to do this. Most of the time when you have the need for software , the brokers in this trade do provide you with the latest version of these software so that you can execute as well as get more in formation regarding the market moves. Two range of software are present in the trade, one is the version for client use and the other one is web use.

In the second type of software that is the web based software, reality is that the software is not installed in your laptop or personal use computer. But what actually happens is that the web browser for access of the software is what you get on your system and the broker has the actual software installed on his webpage. Well as far as the first software that is the client based one is directly on your personal computer or laptops. And you will not have to use through the brokers website.
Any software to start with will have the needed information so that you can start your trade and also will be provided with the present rate information. Also you can get the latest information regarding the cost of the various currencies presently in the market and also will be able to close the market and open the market at your price. Where as you will notice in those very latest versions of currency trading software the facilities to analyze what the market growth and downfall is.

What ever you choose either the client based software or the web based software all you will get is gains in your currency trading business.

Abhishek Agarwal
http://www.articlesbase.com/investing-articles/forex-software-how-to-use-it-to-increase-your-returns-703548.html

What Impact is Automated Forex system Trading having?

Forex trading opportunities have changed dramatically, it was not that long ago when a deposit of $100,000.00 was your entry level to trading. Now you can open up an account with $500 (in some cases even less) and start day trading.  Although the capital traded dropped considerably the trader still had to adhere to the basic rules of trading.

1.       Use a trading system that had a success rate of 60% or more.

2.       Understand risk/reward ratios.

3.       Understand leverage.

4.       Stay with your trading system, have patience, wait for the right time.

5.       Do not change your exit time by holding on for extended profit or holding on to a losing trade waiting for it to turn around.

6.       Sound money management.

7.       Choose the right Broker.

However even this is changing as we have seen the advent of EAs (Expert Advisors or Robots) arriving on the scene. All of a sudden all the qualities needed to be a good trader are no longer needed, “anyone can buy a piece of software download it and start making money, apparently you don’t even need to know anything about the Forex market”.  Naturally, at this point most Traders walk away saying what a load of rubbish.

Most of these systems are used for day trading and scalping .Well I decided if trading can be automated I would be in to try it. Having to watch screens in the middle of the night has always been the downside of trading for me and one of the reasons I prefer swing trading.

I have bought and tried various robots on offer and have had mixed results. Some needless to say were hopeless however with the newer generation ones I have been pleasantly surprised. I would say if you know nothing about trading you are going to find it harder. The more you understand how the market works and in particular the currency pairing you are going to trade in, the more successful you will be. The basic rules relating to money management and understanding the different values of pips and lot sizes is still a large part of trading. The other main point to understand is leverage. One of the attractions of the forex market is being able to gain large profits by using leverage. Unfortunately the down side is if you can trade higher profits you can also have larger losses. Even if the system is 100% automated this does not mean 100% successful. There are going to be losing runs and you must understand how to manage your equity.

My advice is try these automated systems (only look at the ones that are fully guaranteed), trade only using a demo account(paper trading) until you get an understanding of when it is trading and how often and gauge what your true profit is. Don’t forget you are paying your broker for trading (the spread) and this comes out of your profit. The more often the robot trades the more you pay the broker.  I have written a full review on my experiences with the forex automated trading so please visit my site.

Good luck with your trading.

Lyndsay Wilkinson
http://www.articlesbase.com/currency-trading-articles/what-impact-is-automated-forex-system-trading-having-680903.html

Learn about the best automated forex trading software systems. Download automated forex software now!

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The Forex markets are a great way to make money from home. There are many programs online which can help you profit by teaching you market signals and improve your currency trading strategies. If you want to give yourself the best chance of succeeding in Forex, you must try FAP Turbo. This system is a virtual robot which can automatically help you profit through Currency Trading. Best of all, FAP Turbo comes with a full money back guarantee and you can start with as little as $50. Give it a shot – if you aren’t satisfied with your results you can get a full refund. You have nothing to lose and thousands of dollars to gain!

Click Here to Learn How You Can Profit by Currency Trading with FAP Turbo

The foreign exchange (currency or FX) market is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The Foreign Exchange Market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971. Today FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Traditional daily turnover was reported to be over US$ 3.2 trillion in April 2007 by the Bank for International Settlements. The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc, and the need for trading in such currencies.

Jim McEwan
http://www.articlesbase.com/currency-trading-articles/automated-forex-software-automated-forex-trading-software-720724.html

When it comes to trading, two markets are always in the lime light and these would be Forex and Stocks trading. People who are not really that knowledgeable with these trades usually mistakenly think that they’re the same thing. However, this is not the case at all. So, here are the vital things that you need to know about the differences and similarities of Stocks and Forex trading.

The Binding Factor

If there would be something common with Forex and Stocks trading, then that would be risks. As a trader, you should keep in mind that both of them involve risks. To start off, Forex trading isn’t done on a regulated exchange. Hence, as a result, you would still have to deal with the fact that it has additional risks associated to the deals. In the case of stocks, which is traditionally seen as an investment, latest instability and volatility has led this kind of trading to playing a much speculative role.

A lot of stock traders are also venturing another speculative market that has many differences, which is Forex. As an alternative for trading the stocks of different companies, some traders are now changing to trading currencies within the primary market of the world.

Greater Leverage

In contrast to traditional stocks trading, Forex provides you with greater leverage. This allows traders like you to grasp control over larger positions, even if you have the smaller amount of capital. Additionally, this would also give you the opportunity to trade the same position size you may get from a stock broker, but at the same time leaving you with even more available capital, which you could use to trade in more markets. However, you should take note that without the right usage of risk management, going for a higher leverage degree could still lead to bigger losses than gains.

No More Bridges

If you’ll be a currency trader, you would do your business online. By doing this, you would not have extra parties between you and the seller or buyer of your currency pair. Obviously, this middleman elimination could save you a lot of time and of course, fees to deal with. However, the stock market would be pretty different with this kind of method. In stocks, you might deal with brokers and exchanges, both who would charge commissions and fees. This simply means that currency traders would have quicker access along with cheaper costs in their business.

The Market Is Not Controlled

How often have you heard news reports saying that “Mega Business A” was buying “X” or selling “Z,” with an explanation the effect of this phenomena to the whole stock market? As this kind of situation shows, the stock market is quite susceptible to big buys and sells. However, on the contrary, Forex is considered to be the largest and most liquid market. Hence, this makes the probability of any one company, fund or bank to domineer a certain currency tremendously slim. The intense liquidity of Currency Trading could be seen on the vast number of its large participants coming from around the world, such as, banks, futures commission merchants, hedge funds, and governments.

Maintenance

There’s an estimate of 4,500 stocks that are listed under the New York Stock exchange. There is also another 3,500 under the NASDAQ. So, the question is, which trend are you going to follow? Would you have all the time to research all these companies? On the contrary, spot currency trading, would only entail you to know four major currency pairs, which would be: EUR/USD, USD/JPY GBP/USD, and USD/CHF. If you please, you could branch out with the less major currencies. However, most traders would rather concentrate on these, decide whether they’re buying or selling and then have their day free to spend with their families.

Nick Stoles
http://www.articlesbase.com/finance-articles/comparing-forex-to-stocks-trading-681280.html

Choose what best fits to your criteria for foreign exchange trading. We make it easy for everyone who need information on foreign exchange trading here!

To learn more about Forex, please visit:
http://www.BestGuideOnly.com/forex

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