Beginners Guide to Forex Trading
The foreign exchange or forex market is one of the biggest markets in the world. This is a 24-hour market since currencies are traded all around the globe and the daily volume or turnover is really huge. If you’re interested in this field that here are some basic technical terms and concepts that you can start with as you continue to learn and understand trading with foreign exchange currencies.
Because traders like to keep things quick, they decided to shorten the name of the currencies into three letter acronyms. For example, the USD currency code is for the US Dollar, the GBP for the British pound has a GBP and EUR for the Euro. Make sure that you’re aware of these codes to so you’ll know what the corresponding currencies are when you see one.
Major Currency Pairs, Commodities and Indices
There are half a dozen major currencies around the world and this includes the British Pound, the Euro, the Japanese Yen, the Swiss Franc, the US Dollar, the Australian Dollar and the Canadian Dollar. The basic concept that you need to know is that in forex, these major currencies are always traded in pairs. That means there will always be two currencies and those that have highest daily volume are the following:
For the commodities section, these are the ones that have highest daily volume:
For the indices, these are the major markets:
- Dow Jones Industrial Average
- Standard and Poor’s 500
Pips and Spread
In forex trading, profits and losses are measured by the number of pips that are gained or lost. Also called basis points, the pips are the values after the decimal point of a forex rate. The smallest change to the forex rate is equivalent to 1 pip. If you’re going to look at the value of a currency pair, there will be a difference between the buying price or bid and the selling price ask.
The leverage basically is the money that you borrowed your broker. This is used for purchasing financial assets which includes currencies, commodities, stocks and indices. This means for every dollar you put up, you can trade the x of a major currency. For example, a leverage of 1:400 denotes that you can buy or sell a currency which is 400 times greater than the amount you have in your account.
In forex, candlesticks are the most commonly used charts and you can use them fully to your advantage. In this type of chart there is a thin vertical line that indicated the trading range while the wide bar on the vertical line describes the difference between the open and close. Basically, this shows the value of an asset and the volume traded at a specific period.
Types of Trading Orders
There are different types of orders that you can make to control increase the profits and lower the risks.
Market Orders – these are orders to buy or sell a currency pair at the most current best price
Limit Orders – these are orders to buy or sell a currency pair at a certain price or when it is better than the said price.
Take Profit Orders – this orders your broker to close your trade after your profit reaches a certain level.
Stop Loss Orders – this orders your broker to close your trade after your loss reaches a certain level.
Trailing Stop Orders – this orders the broker to close with a sell order if you have entered a trade with a buy order. On the other hand this orders the broker to close with a buy order if you have entered a trade with a sell order.
There are plenty of ways to manage your risks and you need to find the best method that will suit your trading style. However, it is important that you strictly follow these management strategies in order for them to work effectively.