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Understanding Forex – # 1 – What is Forex?
This is a series of articles on the currency market. You learn here what the Forex is how it works and how profitable it can be. The series includes the following items. . .
1. What is Forex
2. Technical Analysis
3. Fundamental Analysis
4. Money Management
5. Compound interest
What is Forex?
The word Forex stands for foreign exchange. This is the most liquid market in the world where you can exchange or exchange currency against another. For example, if you think that the euro will appreciate the value and you have dollars, you can exchange dollars for euros. If you are right and the euro appreciated in relation to money, then you can close position to profit.
That's the basic idea behind the Forex Spot market. This is an interbank system means it is not centralized. No camera compensation where currencies are traded. It is a world market. You can trade Forex online 24 hours a day, six days a week.
This market emerged in the '70s the decade. The reason is that when the currencies are not backed by gold more. They began to float freely. Its value depends on the forces supply and demand due to economic factors, speculation, etc original currency market.
You can trade Forex online, as I said earlier. There are many runners as www.oanda.com that allow you to open an account with only $ 300 to $ 500 and begin online operations. You can also get one count of first demo and trade with play money only to test the waters and see if you like this market or not.
Demo accounts are free with most brokers. Some runners offer demo accounts that mature in 30 days, while others have no expiration date. It is important for trade in the paper, because you can test your strategies and see if they work or not.
Forex is risky, but can be very profitable as well. You can change at any where from 20: 100-400: 1 leverage. This means the broker will provide more money than you have in the trade balance.
For For example, say that the broker can negotiate to 100: 1 leverage. If you use all the levers for each dollar you have in your account, you can change 100. Say you have $ 1,000. With $ 1,000 to 100: 1, you can trade $ 100,000 million dollars in exchange for other currencies. It multiplies its potential commercial lot. Lets get greater benefits but also take on large risks.
Let me show you an example. Suppose that is 100 to 1 leverage on the trade balance and the full functioning with $ 1,000. EUR / USD (euro / US dollar) is trading at 1.2500. Thus, we introduce a position on this pair.
Say you are long. If the market moves in your favor one percent (1.2600) will double your money and end up with $ 2,000 on account. If the market moves against you by one percent (1.2400), it loses all the money you have in the account or the majority based in the corridor which they operate.
This can be happening very fast. The market can move in as many minutes or few hours. This makes the currency very profitable but also highly volatile. I do not know if you are new Merchants can understand the magnitude of what I say here. Many in the foreign exchange transactions to see only half the truth. They slip into this market by all the hype flying around him.
I believe that no other market in the world offer the opportunity to make money as the market does. Moreover, there are risks involved. It is important for new entrants to trade on paper before endangering the real capital. We learn to do. I did not learn many basic concepts in this market until it began to operate an account demo.
Now I will elaborate on the facts. The spot Forex market is traded in currency pairs. When you enter a position in which the exchange of a currency against another. For example if you buy EUR / USD buying euros and selling U.S. dollars. If you sell EUR / USD could sell euros and buy dollars from the U.S..
When entering a position, you can not trade currency pairs, unless you have other funds in your account, but you can negotiate several currency pairs at the same time, provided and when you have enough space / business. If you have never traded Forex before, you can see how it works when practiced with a demo account.
Something else I want to know is that the currencies are traded in pips. Your profit on each transaction depends on many things. One of these aspects are seeds. Another is how much pressure use for trade. A PEP is that the minimum unit price of a currency pair can move.
For example, in the case of EUR / USD is equal to a PIP 0.0001. If the price is 1.2500 and 1.2501 moves, offers a pip. If she moves from 1.2500 to 1.2600 move 100 pips, as in the example above.
Now, how do you in all areas will depend on the number of pips you make and how much money you have invested in this trade. Also, what is the influence of this account. If you operate complete with a crank 100: 1 leverage account and trade $ 1,000, if the mobile market 50 pips in your favor, you is $ 500. This can occur within of minutes after entering your order.
The more experienced traders wouldnt recommend this if. The reason is that if the market moves against you, then you could lose everything in a matter of minutes. It is better to have lower profitability goals for all exchanges simple and compound their profits over time.
principles of money management is better to stay never risk more than 1% – 3% of its capital, especially if you are an inexperienced operator. It something that I have explained in the article of this series.
Well, I hope that this information has been useful for you. This was an introduction to market currency. You can learn more about Forex in my article.
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