I’ve read all the information I could get my hands on, and I still don’t understand. I think its because I’m making assumptions from preconcieved notions.
Like, lets say the currency is USD/JPY = 91.003. Does that mean if I buy, I’m spending yen to buy dollars? Where the hell did I get these yen? And if I sell, does that mean I’m spending my dollars to get yen? So now I have yen in currency in my bank?
Also, the prices fluctuate so much. In real life, how do they trade? I mean, lets say I have a profit of 5000$. By the time I call my broker, the prices may have shifted and now I have a deficit. How does that work?
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May 17th, 2010 at 7:21 am
If you buy USD/JPY, then you are buying USD while simultaneously selling JPY. You’re basicly telling banks to convert the global money supply from Yen to USD, for however much your transaction is worth. Furthermore, your profit/loss is realized after the transaction is completed. So if you bought USD/Yen, you have to sell it back to complete the transaction.
May 17th, 2010 at 7:21 am
Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to the other countries’ economies.
Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or ‘Interbank’ market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.
Therefore, do not confuse yourself with the "real" money and just treat it as using USD to buy Japan Share.
May 17th, 2010 at 7:21 am
It’s very similar to trading futures or any other derivative, you would probably want to have a dedicated trading platform on your computer. I get better fills with forex futures than the spot market, but I actually trade both on two separate computers.
Keep in mind that forex trading is a "trading" arena, generally not for investors. It’s very fast and highly leveraged. Your first objective in the beginning will be to de-leverage and not trade at 100:1 leverage. Email me and I’ll send you an e-book on forex trading.
You can download NinjaTrader for free and get forex and futures data feed for free also. They will let you try it out for several months before depositing any money, and you can trade the simulator and develop a trading plan and try it out, see how you do before investing your money. They also have the lowest margin rates around, just $500 to trade most futures.
http://www.ampfutures.com/index.php
Here are some of the most common currency pairs:
1.EUR/USD - Euro/U.S. Dollar
2.GBP/USD - Great British Pound/U.S. Dollar
3.USD/CHF –- U.S. Dollar/Swiss Franc
4.USD/JPY –- U.S. Dollar/Japanese Yen
5.USD/CAD –- U.S. Dollar/Canadian Dollar
6.AUD/USD - Australian Dollar/U.S. Dollar
7.EUR/GBP - Euro/Great British Pound
8.EUR/JPY - Euro/Japanese Yen
9.EUR/CHF - Euro/Swiss Franc
10.GBP/CHF - Great British Pound/Swiss Franc
11.GBP/JPY - Great British Pound/Japanese Yen
12.CHF/JPY - Swiss Franc/Japanese Yen
13.NZD/USD - New Zealand Dollar/US Dollar
14.EUR/CAD - Euro/Canadian Dollar
15.AUD/CAD - Australian Dollar/Canadian Dollar
16.AUD/JPY - Australian Dollar/Japanese Yen
17.EUR/AUD - Euro/Australian Dollar
NOTE: Of the above 17 currency pairs, six of them are deemed the “major currency pairs” in the FOREX market because they account for about 80 percent of FOREX transactions:
1.EUR/USD - Euro/U.S. Dollar
2.GBP/USD - Great British Pound/U.S. Dollar
3.USD/CHF –- U.S. Dollar/Swiss Franc
4.USD/JPY –- U.S. Dollar/Japanese Yen
5.USD/CAD –- U.S. Dollar/Canadian Dollar
6.AUD/USD - Australian Dollar/U.S. Dollar
As you can see, there is a currency on the left and one on the right. The one on the left is referred to as the base, and the one listed on the right is known as the cross. The format, once again, is as follows. BASE/CROSS, or EUR/USD. The EUR is the BASE and the USD is the CROSS.
TERMINOLOGY:
•PIPS- Price Interest Point. This is the smallest unit price for any Foreign Currency.
•LOT- A lot of currency is one denomination for a trade (100K or mini account). This is similar to purchasing one stock or one contract in the futures market.
•LONG to buy
•SHORT to sell
•BID-The price at which you sell
•ASK-The price at which you buy
Price Interest Point - (PIP)
Profits are made in the FOREX by gaining PIPS. A pip is the last digit from the decimal point. This value is 1/100th of a cent. You may now be asking yourself, how do I make money off of 1/100th of a cent? The answer is leverage. The FOREX market is highly leveraged and should be respected. That said, it can also provide for a tremendous return on your investment. The average leverage in the FOREX is 100 to 1. Basically this indicates that for every dollar you invest in a trade you are controlling $100 of value.
Calculated PIP
Calculated PIP – shows the Price Interest Point (PIP) value for the selected currency pair based upon your trading account margin. For example, a standard 1 percent margin trading account controlling $100,000 in currency would show the EUR/USD with a PIP value of 10.
PIP VALUE-Fixed or Floating
FIXED- When the USD is the cross currency (right side of the pair), the PIP value is fixed at $10 in a 100k account.
FOATING- When the USD is the base currency (left side of the pair), the PIP value is based upon the exchange rate of the cross currency (i.e., USD/CAD.). Also, the PIP value is floating when the pair consists of foreign currencies (i.e., EUR/ GBP).
LOT
A lot is the normal unit of trading in the FOREX market. Trades are made in lot increments, similar to share increments in the stock market.
Standard (or 100k) FOREX account- has a 100:1 leverage ratio
1 LOT= $1,000 investment= ratio leveraged 100 to 1, which = $100,000 in buying power.
Mini FOREX account- has a 200:1 leverage ratio
1 LOT= $50 investment= ratio leveraged 200 to 1, which = $10,000 in buying power.
TRADING HOURS (EST)
•Trades 24 hours a day, 6 days a week. The market is open from Sunday at 5pm EST to Friday at 4pm EST.
On my time (CST), Forex trading begins Sunday evening in Sydney (open 5:00pm – 1:00am), and moves around the globe as the business day begins in each financial center, first to Tokyo (7:00pm – 4:00am), [then Europe (12:00am – 9:00am)], then London (2:00am – 11:00am), and finally Canada and New York (7:00am – 4:00pm).
May 17th, 2010 at 7:21 am
Hi, good question
The Foreign Exchange market, also referred to as the "FOREX" is the biggest and largest financial market in the world. FOREX is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). So basically, FOREX is trading.
In this business you have to use software that could help you , Like the FAp Turbo, It is a forex trading software program that is easy to use. Enter in the settings you need and the software will trade for you. The developers have even gone as far as to say with the default settings earning profits is easy.The major advantage of this trading system is it is 100% hands off. After you set it up for buying and selling you may simply leave it and it will trade for you. They call it a set it and forget it robot for this purpose!
Hope this will help you, if you have some question, just ask me.
May 17th, 2010 at 7:21 am
Forex is simply the trading of money through a broker not your personal bank. It is mostly done online so the trades are instant and most trades are done for a short period of time. If you want to learn more I suggest you read: babypips.com/school/
May 17th, 2010 at 7:21 am
This is why online forex trading has revolutionized the way people invest in currencies. The internet has made trading a lot easier and faster that you can get instant confirmation of your transactions online. You do not have to call your broker to place your orders.