Beginner’s Guide To Fx

Fx, foreign exchange, forex and


currency exchange are all names for the market for trading


currencies.

On the currency


exchange, trading is used to speculate on


the strength of one currency against


another, so currencies are always traded in pairs if you


believe the first named currency will fall against the second one, you sell, if you


believe the first named currency will rise against the second, you buy.

As an example, if you believed the Australian dollar would


rise against the US dollar, you


would buy, or go 'long'. It is quoted at 1.6756 / 1.6759 and you buy one contract at 1.6759.







 For each unit of 0.0001


( or 'pip ) the Australian dollar rises against the US dollar, your profits increase, and for each 'pip' ( or 0.0001 unit ) the Australian


dollar falls contrary to the USD, your profits fall. In an AUD100,000 contract, you have got an exposure of USD10 for every pip


movement, figured out by multiplying the pip unit by


the value of the contract ( USD0.0001 x AUD100,000 = USD10 ). So if the


AUD goes up to 1.6759, you make USD30.

 When your account is open it will be altered daily to reflect the overnite


effect of the difference in rates between the Australian and


US dollars Together with a rate of


interest of your CFD broker for holding a long position.




 So a few days later AUD


/ USD is trading at 1.6877 / 1.6878 and you decide to


close your position, selling your contract and taking your profit. The biggest


difference between the closing position of 1.6844 and the opening position of


1.6859 is 0.0121, so yourreturn is USD1,210 ( USD0.0121 x AUD100,000


= USD1,210 ).

Why trade fx

• The forex market is the world's most traded market, with a daily
  
  
  trading volume of USD3.98 trillion as of April 2010, according to the
  
  
  Bank for International Settlements. This comprises USD1.49 trillion in spot transactions, USD475
  
  
  bn. in outright forwards, 1.765 trillion in foreign exchange swaps, USD43 bln in currency swaps
  
  
  and USD207 bn. in options and other products.
•  The liquidity of the
  
  
  currency markets, which means the bid-offer
  
  
  spreads are small contrasted to other asset
  
  
  groups, particularly in the case of major
  
  
  currency pairs , such as like the Australian, US and
  
  
  Canadian dollar, and the British pound, yen, euro and Swiss
  
  
  franc.
•  Due to
  
  
  the higher levels of liquidity, you
  
  
  can use high gearing having the ability to trade USD100,000 unit currency lots for as
  
  
  low as a 0.5% deposit, or USD 500.
•  Foreign
  
  
  exchange trading is commission free.
•  As the forex is a Twenty four hour
  
  
  market, trading positions that may be opened then shut at all hours, and internet trading means
  
  
  your orders are executed straight away.
•  It's possible
  
  
  to turn a profit at any time in time as currencies
  
  
  are traded in pairs, one will be moving versus the other.
• Though
  
  
  price movements can be
  
  
  volatile, they usually follow
  
  
  predictable patterns, which can sometimes be an advantage
  
  
  for traders who've got a clear system.

Remember that CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure you understand the risks concerned.