How To Start Trading The Forex Market? Part4

Start Trading The Forex Market? Part4 - How are Currencies quoted and what moves individual currencies? One of the best advantages of Forex Trading is The amount of money you need to make a trade (known as "margin") is all that can be lost!

How To Start Trading The Forex Market? Part4

How To Start Trading The Forex Market? Part4

You should know, that despite the super high leverage offered by some Forex brokers up to (400:1); meaning if you put up $1000 the broker will allow you to trade like you actually have $400,000).

Forex trading is still less risky than Trading Stocks or Futures, where you can lose more than you deposited in your account.

This type of LEVERAGE DOES NOT exist in the equity or futures market

In the Equity or Futures market, very often, sudden and dramatic moves occur, where you cannot protect yourself, even by placing your protective stops.

Your positions may be liquidated at a loss, and you will be responsible for the resulting deficit in the account.

But due to the deep liquidity of the FX market and continuous 24-hour trading, dangerous trading gaps and limit movements are almost eliminated.

Orders are executed quickly, without slippage or partial filling. And finally, no margin calls. For your protection, the broker will automatically close some or all of your open positions if your account equity falls below the level required to hold those positions.

Think of this as the last automatic stop, always working on your behalf to prevent debit balances.

Currency is traded in dollar amounts called "LOTS"

In Forex trading, with most Brokers, you have a choice between 2 different lot sizes.

Standard Lot or Mini Lot.

One Standard lot equals $100,000 in currency. The margin requirement, using 400:1 Leverage, would be US$250, in other words you control $100,000 worth of currency with just 250 US dollars.

You mean, by depositing $250 with the broker I can trade $100,000 worth of currency???

NO, please note, that your account size must be more than the required margin of US 250. For example, if you place an order to buy 1 Standard lot ( @100,000) of USD/JPY and USD/JPY is quoted as 112.10 /112.13, you are buying USD/ JPY at 112.13.

Your account balance will be $220, because you paid 3 pips or $30 for this trade.

If you were to close this trade immediately, you would have to sell it at 112.10 (bid price) , with a loss of $30.

Actually you cannot be executed on this trade, because the broker's trading platform will reject your order, citing insufficient funds in your account).

So, your account balance must be at least $280. $250 for margin and $30 for trading.

BUT....IF, after you start trading to buy USD/JPY at 112.13, and USD/JPY drops the next 1 second pip (roughly $8), your position will be closed automatically, due to a margin deficit.

I will explain later about having a sufficient account size to trade on the Forex Market.

Currencies are always traded in pairs on FOREX. Pairs have a unique notation that expresses what currency is traded.

The symbol for a currency pair will always be in the form of ABC/DEF. ABC/DEF is not a real currency pair, it is an example of a symbol for a currency pair. In this example ABC is the symbol for the currency of one country and DEF is the symbol for the currency of another country.

Some of the most commonly used symbols in Forex are:

USD - US Dollar

EUR - The currency of the European Union "EURO"

GBP - British Pounds or Cable

JPY - Japanese Yen

CHF - Swiss Swiss Franc

AUD - Australian Dollar

CAD - Canadian Dollar

There are symbols for other currencies as well, but these are the most commonly traded.

Currency can never be traded by itself. So you can never trade USD by yourself. You always need to BUY one currency and SELL another to allow trading.

Some of the most traded currency pairs are:

EUR/USD Euro against US Dollar

USD/JPY US Dollar against Japanese Yen

GBP/USD British Pound against US Dollar

USD/CAD US Dollar against Canadian Dollar

AUD/USD Australian Dollar against US Dollar

USD/CHF US Dollar against Swiss Franc

EUR/JPY Euro against Japanese Yen

The currency on the left of / is called the base currency.

The currency right of / is called the counter currency.

When you place an order to buy EUR/USD, for example, you are actually buying EUR and selling USD.

If you sell the pair, you will sell EUR and buy USD. So if you buy or sell a PAIR currency, you are buying/selling the base currency.

The best way to remember is, to only think of all currency pairs as one item.

If you buy it...You buy the first currency and sell the second currency. If you sell it... you sell the first currency and buy the second currency.

That means you will be able to short-sell without any restrictions so you can make money when the market is down as well as when the market is up.

The problem with the traditional stock market or commodity trading is that the market has to go up in order for you to make money. With FOREX trading you can make money in any direction.

That's How To Start Trading The Forex Market? Part4


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