Forex Trading for Novices

In Capitalizing upon the buying and selling of different currencies, the Forex market is the largest in the world, where trillions of dollars exchange hands on a daily basis.  To profit from this powerful market, it is important to build your foundation with an understanding of Forex basics.

Forex Trading Quotes

Before you can develop currency trading strategies, you need to be able to read Forex quotes.  Foreign exchange quotes are always listed in pairs (i.e.  USD/JPY 103.2): the first listed currency is known as the base currency and has a constant value of 1 unit, while the second currency is known as the counter. In this example, USD/JPY 103.2 signifies that one US dollar will obtain 103.2 Japanese yen.  When quotes are rising, it means the dollar is increasing in value, and when they are falling, the dollar is decreasing in value.

In Forex trading, two-sided quotes are offering encountered (i.e.  EUR/USD 1.4355/1.4360) and represent the bid and the ask price for the currency involved.  The bid is the price at which you can sell the base currency, and the ask is the price that you can buy.  The difference is commonly referred to as the spread.  In the example above, you can buy one euro at 1.4355 US dollars or sell one at 1.4360.  The difference is how brokers manage to offer commission-free services, as they always pocket this difference.

Trading Major Currencies

No novice should try to develop any Forex trading techniques outside of the seven major currencies: the US dollar (USD), Euro (EUR), Japanese yen (JPY) British pound (GBP), Swiss Franc (CHF) Canadian dollar (CAD) and Australian dollar (AUD).  Don’t attempt Forex trading with a minor currency, as it could produce liquidity problems for you, and you may have difficulties selling.  It is always best to trade currencies that you are familiar with and have high volume, as this further assists in your understanding of the strengths and weaknesses.

Forex Trading Players

Until 1998, currency trading was essentially limited to banks, major currency dealers, and major multinational corporations.  The late 90s, the market was broken up into smaller units and became available to the retail investor. You should be aware, nonetheless, that if you decide to develop a currency trading strategy, you will be pitting yourself against the largest financial institutions in the world.

Why should I do FOREX Trading?

This market is hands down, the largest market in the world.  It is one of the few markets that trades 24 hours a day.  This allows you the opportunity to implement your currency trading strategies at any time and from any place. The leverage in this market is unparalleled by any other, offering huge profit potentials with minimum capital requirements.  However, it is not advisable to partake in Forex trading without first learning currency trading strategies, for there are no rewards without risks.