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What is Forex Trading? - Fxtradingtools.com

What is Forex Trading?

Quite simply, forex trading is the act of buying and selling currencies. This is the world’s largest financial market with a daily turnover of $5 trillion and it involves many people – and many currencies. Because you are always buying one currency using another currency, you trade ‘currency pairs’.

Want to visual explanation?

How can you benefit from exchange rate changes?

Exchange rates change all the time, and forex traders attempt to profit from these changes. Here’s a quick example:

Let’s say you travel abroad and you go to an exchange and use $500 to buy euros. After a week, you come back (without spending a single euro) and exchange your euros back to dollars – but you receive $505, because during the week, the exchange rate changed. This is a profit of 5 dollars, which you made by trading currencies.

Of course, nowadays you don’t need to leave the house to invest in the price of currencies – and you don’t even need to actually buy the currencies. Thanks to online forex trading anyone can invest in the price of different currencies from home - or even from their smartphone - and potentially profit from changes in price.

Which Currencies Can You Trade?

 

  • Majors
    The most traded currency pairs are called ‘majors’ and they compose about 85% of the entire foreign exchange market. Note that they all include the USD. These major pairs are:
    • EUR/USD
    • USD/JPY
    • GBP/USD
    • AUD/USD
    • USD/CHF
    • NZD/USD
    • USD/CAD
  •  
    Cross pairs
    (AKA ‘Crosses’) Currency pairs that do not include the US Dollar are commonly known as ‘cross currency pairs’. A few examples will be
    • GBP/JPY
    • JPY/CAD
  •  
    Exotics
    Exotic currency pairs are made up of one major currency and a currency of an emerging economy. Examples would be
    • USD/ZAR
    • USD/HKD

                                                             Understanding Pips

What is PIPS in FOREX TRADING?

Understanding Pips

Pip stands for Percentage In Point. For most currency pairs, it corresponds to the movement of one unit of the fourth decimal digit in a rate, but there are exceptions like the Japanese Yen pairs, where a pip corresponds to the movement of one unit of the second decimal digit in a rate.

Confused? Here’s a quick example:

If the EUR/USD moves from 1.1050 to 1.1051, this .0001 rise in value is one Pip.

When Can You Trade Forex?

The forex market operates 24 hours a day and is commonly separated into four sessions: The Sydney session, the Tokyo session, the London session, and the New York session.

Leverage Currency Trading

In the past, only large investors participated in currency trading, but nowadays anyone can trade currencies from home – and you don’t need to be rich to invest. Thanks to a unique tool called ‘leverage’ you can open large deals with a relatively small investment. For example, with a €100 investment, you can open a deal of up to €40,000, using leverage of 400:1.

Leverage Currency Trading

This means that for every euro you invest, we give you up to €400 in trading power.

How to Open Your First Currency Deal

Are you ready to open your first currency deal? Great!
You can do so in three simple steps.

  1. Choose a currency
    Let’s say you want to trade EUR/USD, for example. If the price of one euro is $1.1200, with a €100 investment, you could have bought $112, without leverage.
     
  2. Choose Your Deal Size
    By using leverage you can open a deal worth up to 400 times your initial investment. For example, with a €100 investment, you can buy €40,000 worth of dollars, using 400:1 leverage.
    €100 X 400 = €40,000
     
  3. Choose Direction
    When you trade currencies with Forex Robots (Fxtradingtools.com), you could profit even when you think prices will go down. In this example though, let’s assume you think the price will go up. Choose ‘Buy’. Now what?
     
  4. Close Your Deal and Collect the Profit
    Let’s say the rate of the EUR/USD rose - meaning that the price of the euro increased by 0.01 - and you decide to close your deal.
    Close Your Deal
    This is a change of 0.01 for €40,000 deal, meaning a profit of $400 with a €100 investment.
The key elements of Forex Trading with - Fxtradingtools.com
  • Take part in the largest financial market in the world
  • Open large deals with a relatively small investment
  • Invest in a wide variety of currency pairs
  • Receive free access to useful education resources
  • Benefit from free training with a trading coach
  • Trade in your free time from your PC or mobile device