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Currency Trading: the basics





Investors who believe that trading is simple are the ones who mostly fail. Trading is very trick and success depends on education and practice.

Forex is the largest investment market in the world, and continues to develop. In 2010, forex reached $4 trillion on daily basis standard earnings, an increase of 20% since 2007. Moreover, traders have found forex to be suitable for their investment goals.

Currency trading is a 24-hour market, only closed from Friday evening to Sunday evening, but the 24-hour trading sessions are deceptive. There are three sessions; the European, Asian and United States trading sessions. Even though there is a number of overlap in the sessions, the major currencies in each market are traded typically in those market hours. Traders who stay with pairs based on the dollar will find the most volume in the U.S. trading session.

Currency is traded in a variety of sized lots. The micro lot is 1,000 units. If your account is funded in U.K. sterling, a micro lot represents £1,000 of your base currency, the sterling. A mini lot is 5,000 units of your base currency and a standard lot is 500,000 units.

All currency trading is done in pairs. You have to buy one currency and sell another currency in the forex market. Almost all currencies are priced out to the fourth decimal point. A pip is the smallest increase of trade. One pip typically equals to 1/100 of 1%.


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Retail traders often employ micro lots, as one pip in a micro lot represents only a 10 cents move in the price. This makes losses more manageable if a trade doesn't bring the estimated outcome. In a mini lot, one pip equals $1 and that same one pip in a standard lot equals $10. Some currencies move as much as 100 pips or more in a single trading session making the likely losses to the small investor a lot controllable by trading in micro or mini lots.

 Most currency trading is restricted to 18 currency pairs in comparison to a huge number of stocks accessible in the equity markets, internationally. The eight currencies mostly traded are the U.S. dollar (USD), Canadian dollar (CAD), euro (EUR), British pound (GBP), Swiss franc (CHF), New Zealand dollar (NZD), Australian dollar (AUD) and the Japanese yen (JPY). Having a few trading options makes trade easy.

One of the largest forces that move the stock market and the currency market is supply and demand. The value of the dollar increases as soon as more dollars are needed, but when there are too many getting about, the price drops. Interest rates, latest financial data from the largest countries and geopolitical intensity, affect currency prices too.

Finding the trading strategies for success needs practice. To be more specific, most forex brokers will agree to you to let you first open a free virtual account so as to trade with virtual money until your strategies, suitable for you.


See all 8 articles in category Forex



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