Learn to Trade Forex

2007-03-08 10:33:40

( Business )



The foreign exchange market has been estimated by some to reach a volume of as high as $1.9 trillion per day, dwarfing the equities and commodities markets. It owes its popularity to several reasons, namely, its availability 24 hours a day, the ability to trade on margin, low dealing costs, and profit potential in both rising and falling markets. It carries a lot of opportunities, as well as risks. To increase your opportunities and minimize your risks, you need to learn to trade by arming yourself with some essential information.

Key terms

Before learning how to trade currencies, you must familiarize yourself with some important terms used in the business, which might sound too technical to the uninitiated.

Margin trading means you can buy or sell currencies with more value than your account. Most online currency trading platforms offer margins between 1 to 5 percent. A margin of 1% means you can trade up to $100,000 on a $1,000 account. This translates to a leverage of 100:1. This much leverage could mean huge profits or losses.

Cross is a currency combination, such as US Dollar/Japanese Yen (USD/JPY) or British Pound/Swiss Franc (GBP/CHF). Thus, a cross-rate is the value of one currency vis-à-vis another.

Bid is the selling price.

Ask is the buying price.

Spread is the difference between BID and ASK. Usually, the spread on commonly traded currencies (called “majors”) is 5 pips.

Pip is the smallest unit by which a price quote changes. For example, the USD/JPY bid increase from 110.15 to 110.25. This means that the bid price went up by 10 pips. To make it easier, one pip is equivalent to a unit change in the rightmost digit of a price, ten pips to a unit change in the second digit to the right, and so forth.

Learn to Trade Online

Forex trading is laced with opportunities and fraught with risks. You have a lot to learn before you can actually start trading using your hard-earned money. The good news is that you can learn forex trading using the websites of various companies offering online forex trading. These websites almost always offer free courses to beginning would-be traders. If you’re going to trade the account yourself, you should learn to trade by knowing all there is to know to become a successful trader.


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