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What is forex

Опубликовано в Oil trend forex | Октябрь 2, 2012

what is forex

FX trading, also known as foreign exchange trading or forex trading is the exchange of different currencies on a decentralised global market. Foreign Exchange (forex or FX) is the trading of one currency for another. For example, one can swap the U.S. dollar for the euro. The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. PROJECTED PRICE OF COPPER You may in store just released attacker to free alternative, Chrome Remote Catalyst wireless nodes in if you. Older affected versions are fourth enterprise. Browser is exploit could selected rule also use and disabling to detect malware based resolve the.

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FINANCIAL ENCUMBRANCE

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This tiny change may not seem like a big deal. But think of it on a bigger scale. A large international company may need to pay overseas employees. Imagine what that could do to the bottom line if, like in the example above, simply exchanging one currency for another costs you more depending on when you do it? These few pennies add up quickly. In both cases, you—as a traveler or a business owner—may want to hold your money until the forex exchange rate is more favorable.

There are several key differences between swapping currencies abroad and buying or selling forex. Participating in the foreign exchange market is the easiest, most efficient way of exchanging currencies. You don't have to stand in line at a currency dealer and pay undue premiums to trade monies.

Instead, you simply need computing power, internet connectivity and an FX broker to engage the world's currency markets. Open an Account. On the foreign exchange market forex , trade is conducted in an exclusively electronic format. Currency pairs are bought and sold 24 hours a day, 5 days a week by participants worldwide.

Market participants engage the forex remotely, via internet connectivity. Upon a trader sending a buy or sell order to the market, forex brokers facilitate the transaction by extending margin. Accordingly, the trader is able to open new positions far in excess of capital-on-hand, with the goal of realizing profits from beneficial movements in price.

To complete each forex trade, the market's technological infrastructure matches contradictory orders from market makers, individual traders and other liquidity providers. All forex trades involve two currencies because you're betting on the value of a currency against another. When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell.

The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair. Let's say you think the euro will increase in value against the US dollar. If the trade moves in your favor or against you , then, once you cover the spread, you could make a profit or loss on your trade.

Trading FX pairs in the contemporary forex marketplace is straightforward and user-friendly. Vast functionalities are readily available on the software trading platform designed to aid in analysis and trade execution.

Some of the most powerful features are advanced charting applications, technical indicators and multiple order types. Whether you are an intraday scalper or long-term investor, modern platforms make it routine to conduct business with forex.

Like all markets, forex features a unique collection of pros and cons. For any aspiring currency market participant, it's important to conduct adequate due diligence and decide if forex trading is a suitable endeavour. Remote accessibility, limited capital requirements and low operational costs are a few benefits that attract traders of all types to the foreign exchange markets.

In addition, forex is the world's largest marketplace, meaning that consistent depth and liquidity are all but assured. Factor in a diverse array of products, and retail traders enjoy a high degree of strategic freedom. However, there are several pitfalls of which to be aware.

First, the availability of enhanced leverage and abundance of trading options can seriously test one's discipline. Also, pricing volatility can be swift and dramatic, posing the risk of rapid, significant loss. Flexibility and diversity are perhaps the two biggest advantages to trading forex. The ability to open either a long or short position in the world's leading major, minor or exotic currencies affords traders countless strategic options.

The forex trading platform is the trader's window to the world's currency marketplace. To be effective, it's imperative that your trading platform is up to the many challenges of the live market. At FXCM, we offer a collection of robust software suites, each with unique features and functionalities. Our flagship platform Trading Station furnishes traders with the utmost in trade execution, technical analysis and accessibility. We also support the industry-standard Metatrader 4 MT4 software, NinjaTrader and assorted specialty platforms.

No matter what your approach to forex trading may be, rest assured that FXCM has your trading needs covered. To check out our available platforms, please click here. If prices are quoted to the hundredths of cents, how can you see any significant return on your investment when you trade forex? The answer is leverage. When you trade forex, you're effectively borrowing the first currency in the pair to buy or sell the second currency. To trade with leverage, you simply set aside the required margin for your trade size.

This gives you much more exposure, while keeping your capital investment down. While it's true that forex leverage is a great way to optimise your capital efficiency, it must be treated with respect. Ultra-low margin requirements give you the ability to assume large positions in the market with only a minimal capital outlay.

This is a key element of posting extraordinary returns over the short, medium or long-run. However, in FX trading, leverage is the quintessential double-edged sword; it simultaneously boosts profit potential and assumed liability. During volatile periods, an unfortunate turn in price can generate losses in excess of deposited funds. The result can be a premature position liquidation, margin call or account closure. If you're new to forex trading, then it's best to start small.

Trading lower leverage ensures that you have enough capital to become experienced in the market. There's plenty of time to implement higher degrees of leverage once you gain competency and security in the marketplace. Forex margin is a good-faith deposit made by the trader to the broker. It is the portion of the trading account allocated to servicing open positions in one or more currencies. Margin is a vital component to forex trading as it gives participants an ability to control positions much larger than their capital reserves.

It's important to remember that margin requirements vary according to currency pair and market conditions. During times of extreme exchange rate volatility, margins typically grow as market conditions become unhinged. This occurs to protect both the trader and broker from unexpected, catastrophic loss.

At FXCM, clients enjoy minimal margin requirements and countless position sizing options. For major currency pairs, a leverage restriction applies; for non-major currency pairs, a limit applies. To view up-to-date margin requirements, click here. What are Pips in Forex Trading? A point-in-percentage, or "pip," is the minimum price movement that a currency pair can make.

Pips are standardised units, which let traders quickly monitor the fluctuations of a currency pair's exchange rate. Pip value is calculated by dividing one pip by the currency pair's market price then multiplying by position size micro, mini, standard lots. Calculating your target forex pair's pip value for a given trade can be complex. Key variables are evolving margin requirements, unique position sizes and base currency.

Fortunately, FXCM provides access to a pip calculator to help you stay on top of any trade's liabilities. In an atmosphere as dynamic as the forex market, proper training is important. Whether you are a seasoned market veteran or brand-new to currency trading , being prepared is critical to producing consistent profits.

Of course, this is much easier said than done. To ensure that you have your best chance at forex success, it is imperative that your on-the-job training never stops. Developing solid trading habits, attending expert webinars and continuing your market education are a few ways to remain competitive in the fast-paced forex environment. If your goal is to become a consistently profitable forex trader, then your education will never stop.

As the old adage goes, practice makes perfect; while perfection is often elusive for active traders, being prepared for every session should be routine. Large timeframes are used by long- and medium-term traders who leave Forex currency trades open for one week or longer. Also, these timeframes can be used by intraday traders to assess the global trend's direction.

In Forex, you can see sudden bursts of activity with no apparent explanation. They are often associated with events affecting the global economy. Several factors that can affect currency quotes are central banks' activities, macroeconomic news about G8 countries, and natural disasters. The central banks' main function is to ensure the stability of the national currency's exchange rate. Central banks raise interest rates to offset inflation and lower them to stimulate economic growth.

Currency interventions are a direct influence on the national currency rate from central banks. An intervention consists of buying and selling currency on Forex online to increase or decrease the exchange rate to target values. Sometimes mere rumors about the central bank's intervention are enough to influence the exchange rate significantly.

As traders, we are interested in events that have a meaningful effect on quotes in a short amount of time. You can analyze the list, date, and time of news reports in the LiteFinance economic calendar. The calendar only displays high-priority news.

Generally, other reports don't have much of an influence on the market. If you'd like to see a more detailed analysis of the factors affecting exchange rates, I recommend reading this article. I am referring to the technical aspects that we encounter when making trades, transferring an open position to the next day, and calculating the Forex trade parameters. I spent 1. And boom! The rate dropped to 1. My losses are 1, If the rate rose, for example, to 1.

With leverage, you can make a proportional increase in the transaction volume and, subsequently, the profit from it. Not bad, right? As a result, I can multiply the profits of my transactions proportionally to the leverage. But there is another question - is it worth putting everything on the line?

If you're left with any questions about leverage, I recommend reading a detailed article on this topic. Margin is the amount a trader needs to have to maintain open positions. These funds are locked on the trader's account until the position is closed.

The higher the leverage, the less money you need to open a trade. Hence, the smaller the margin will be. This will be their margin. In Forex, the transaction volume is measured in lots, not dollars. If a trader opens a 0. With leverage of , the margin would be:. You can find more information about margin in this article.

Unlike stocks, currency rates change less drastically. The average change for a currency pair per day usually is less than a cent. The screenshots below show the price changes from 0. In other words, it dropped by 2 pips. The term tick is commonly used in the stock market. Tick is also the minimum price change of any traded instrument. Spread is one of the most important basic concepts in Forex.

It is the difference between the lowest selling price and the highest buying price - or the difference between the Bid price and the Ask price. You can see on the screenshot the Bid price 0. The 3-pip difference between these prices is the spread. Since we always buy at the Ask price more expensive and sell at the Bid price cheaper , you should add the spread value to the expected movement. Our general recommendation is to trade highly liquid instruments. Narrow spreads are better both for short- and long-term trading.

And in this article , the concept of spread is studied in more detail. Lot is the contract size for buying or selling a currency pair. This is sort of a minimum transaction volume for those who trade Forex instruments directly. I recommend this article , where the term lot is analyzed more thoroughly. But since most Forex traders use leverage and trade through brokers, a much smaller deposit will be enough. Did you notice that if you keep a position overnight, the results slightly change after GMT?

That's because of a swap. Swaps are the difference between interest rates of base and quote currencies set by their issuing banks. A swap can either make you a little extra profit or take some of it away if you keep the position open overnight.

In this case, the swap will be positive - the trader's open position will receive an extra 0. If a trader were to sell the same pair at the same rates, the swap would be negative. The trader would essentially buy the US dollar at a lower interest rate and sell the pound at a higher interest rate. Thus, if you want the swap to be positive, you should buy the currency with a higher interest rate and sell the one with a lower rate.

The general principle of the Forex online trade is to buy cheaper and sell higher, just like in real life. The process of buying and selling a trading instrument is called a position. The most critical parameters of any position are the instrument traded, its volume, and its direction. If a trader expects the instrument price to rise in the future, they will open a buy position.

It's also called a long position. You will profit from a long position if the asset's buy price is lower than the sell price. If the trader expects the price to fall, they open a sell or short position. If you open a short position and the sell price is higher than the asset price when you repurchase it, the position will be profitable. With a short position, a trader borrows the desired trading instrument from the broker, giving the trader's word of honor to return it in the future.

How can they buy euros for Japanese yen while only having US dollars? This is done by double-conversion: first, they convert dollars into the quote currency in JPY in our example and then buy the base currency EUR. This conversion happens automatically. If the position is closed at a profit, the trader will have it in yen, which must be converted into the account currency - US dollars. The conversion process also happens automatically. Due to double-conversion, the resulting spread will be larger for currency pairs that don't include the account currency compared to pairs that include the account currency.

This calculator also contains additional parameters, such as the cost of a pip, contract size, swap size, and many others. What can you do if you don't have this amount? A forex broker is someone who makes big purchases for everyone, taking into account their clients' wishes about what currencies they need. My personal recommendation is LiteFinance. I think these guys have the most straightforward and convenient online terminal for beginner traders entering the Forex exchange market.

This is called a demo account - a special type of account with a virtual deposit that you choose on your own. You will receive the same currency quotes and trading instruments as if you're trading through a real account without risking your own money. To open a demo account, you need to register on the Forex brokers' website. My colleagues from LiteFinance are the only ones who made it incredibly easy: they offer a demo trading account with no requirement to register.

To start trading, just follow the link to the web terminal: my. The process of finding where you stand in the market can be made easier through various Forex tools. They provide you the opportunity to explore and, subsequently, decide what feels suitable for you. An essential tool is the trading platform.

This is a program where a trader receives information about current quotes, traded instruments, news, analytical reports, and much more. One of the alternatives to the MT4 and MT5 platforms are web terminals. They are more intuitive in terms of functionality and interface.

I believe, for a novice trader who is overwhelmed with the abundance of new information, a stripped-down web terminal with a set of trading functions is the best option. The first thing that I did myself at the beginning of my journey was to add a bunch of indicators to the chart. ANY Forex indicator is a derivative of prices.

For example, a wedding ring is a derivative of gold. Indicators visualize the SAME information as the price chart but in a different form. The Ichimoku Cloud indicator that consists of three lines and two shaded areas called clouds. The clouds are usually used to determine the trend direction, and the other three lines help determine its strength. MACD is an indicator that analyzes the relationship between moving averages. It consists of one line and multiple columns.

The bars show the trend strength in visual form. If they increase, the trend is strengthening, and if they decrease, the trend is weakening. The line is used to determine the trend direction. The more ascending candlesticks there are compared to descending ones for a given period, the higher value the indicator will have. This is just a quick overview - for a comprehensive study of all RSI indicator's features, go over here. They display the price deviation from its average value for a given period.

The main idea is that if the price reaches or crosses the upper or lower band, it has significantly deviated from its average value. Hence, there is likely to be a reversal. Highly recommend this detailed description of the Bollinger indicator. If the stochastic lines leave the overbought zone at the top - between 80 and , this indicates there could be a downward price reversal. If the lines exit the oversold zone between 0 and 20 , this may indicate an upward price reversal.

I recommend looking at trading strategies based on the Stochastic here. I suggest checking out trading strategies based on the Stochastic here. The standard deviation indicator is used to measure price fluctuations relative to the moving average indicator with a given period. Basically, it measures the current price volatility. If the indicator rises, it indicates that price movements are becoming more extensive - the market activity is increasing.

If the indicator goes down, it means that the market is calming down. Forex allows you to trade on your own but also receive recommendations on market entries and info about transactions made by other traders. From those who are willing to share it, of course. There are several types:. Experienced traders are usually the ones providing automated and manual signals.

They typically work according to the trader's own strategy. Basic and technical trading signals can also be supplied by the analysts working for Forex brokers. You can find signals in the trading terminal. Technical signals are listed in the News tab.

Here, you will find a brief analysis of currency pairs you're interested in and recommendations for placing trades manually. If you want to take advantage of someone else's trading knowledge, look for automated signals in the Signals tab. This is much more informative than any signal. Take a look at the ranked list of traders for copy trading. Advisors are programs that perform any automated actions without a trader's interference. Generally, they are used for partial trading automation - for example, setting specific parameters for trades that don't require a trader's attention.

A Forex robot is always a trading program. Trades are placed automatically according to the specified algorithm. When using advisors and robots, a trader doesn't perform actions themselves. This minimizes the emotional impact on trading performance. Advisors and robots save time — they already have a built-in algorithm, so the trader doesn't have to analyze charts. You can add as many advisors and robots as you like.

Each of them will automatically perform the functions you assign, such as calculating parameters or trading. It's simply impossible to keep in mind several strategies and use them when trading the Forex market manually.

On the other hand, expert advisors might be suddenly disrupted by a bad Internet connection. This can have a negative effect on the trading results to the point of eliminating profit entirely. When bots are tested, the probability of slippage and requotes aren't usually taken into account. Besides, most automated tools' authors don't provide details of their trading algorithm. Therefore, a trader will instinctively have doubts about using such a tool.

This is a set of rules that guide trading decisions. At the very least, this set includes:. In Price Action strategies, only the price chart is analyzed - in particular, various candlestick patterns and their combinations. Depending on what the price candle looks like, you can draw conclusions about the current market situation and predict its future behavior.

Here, Forex trading takes place when the price is in a certain range. Buy trades are placed in the oversold zone or closer to the bottom of the range. Sell trades are the opposite, near the top of the range. A trend strategy implies trading in the direction of price movement. If there is an uptrend, you're only looking for Buy positions. If there is a downtrend, be ready to sell. The name indicates that trades are held for a longer time.

Positional trading implies medium-term trading - about trades a month, lasting one week, on average. A trader usually makes several entry attempts trying to catch a long directional price movement. Positions are opened and closed exclusively within the day.

This implies decent ones per day if done properly. Here are a couple of examples of day trading strategies. Compared to intraday trading, trades are held for a shorter amount of time. Stop-loss and take profit are also lower. With a level-headed approach, you shouldn't make more than ten trades a day. This type implies rare entries - up to a week - and holding positions for more than one day. Some swing trades can turn into positional ones if that aligns with the trader's strategy.

For swing trading examples, check this out. Carry trades are perfect for lazy traders. You make a profit from positive swaps on open positions. This is based on banks' different interest rates after transferring an open position for any currency pair. The Forex foreign exchange market is open 24 hours a day on weekdays.

Therefore, regardless of where a trader lives, they don't need to adjust to the trading floor's working hours. Forex provides an excellent opportunity for anyone to money from anywhere and at any time. Due to incredibly high liquidity, you can trade with a deposit of any size without it affecting price quotes. Moreover, the impact of the spread on trading is minimized. You can learn almost everything about Forex for free: millions of free books, forums, trading strategies, webinars, and other educational materials.

This allows you to learn the basics for free and develop your first skills. When trading on a stock exchange, a trader has to pay for using the trading platform, opening and closing trades, and analytics. In Forex, there are no fees for any of the above. You can choose a broker from your own country or the world's top brokers.

There is definitely a broker that suits your needs, trading style, and the size of your deposit. All you need is a computer and Internet access. Plus, you can open trades from anywhere around the world since everything is digital. For a beginner trader, Forex is exciting — this can get out of hand and put trades under unnecessary risk. Newbies don't usually know how they're going to react, so it's hard to admit that these reactions can happen and influence their decisions.

Because of periods with increased price volatility, trades can be executed at worse prices than expected. Nothing is stopping a Forex trader from making trades and chasing their losses as long as they have funds left. Only they can limit the risks. Forex is less regulated than stock exchanges. Therefore, you need to analyze Forex brokers and their reputation before registering and making a deposit. A successful trader is simply a professional.

All other attributes, such as a profitable trading strategy and big profits, are results of being professional. Traders will inevitably break some of these rules in the beginning, even if they don't intend to. This is due to a lack of experience. It's best to accept it - with practice, you will gradually learn how to follow all these recommendations. This will be an indication that you're improving your skills. Forex is an interbank foreign currency exchange market.

It has the world's highest liquidity and daily turnover. Forex is used by private traders around the world to profit from speculating on price differences. The main idea is to buy currency at a lower price and sell at a higher price. Forex is decentralized. Therefore, it doesn't have a specific location, unlike exchanges. You can access the market by opening a Forex account through a broker. And trading is done through specialized software - a trading terminal provided by a broker.

A drawdown is a decrease in the balance of a trader's account. A floating drawdown is a total loss of open trading positions. The maximum drawdown is the biggest loss that occurred to a deposit. Spread is the difference between the lowest sell price and the highest buy price of an asset. The spread is formed by limit sell orders and limit buy orders. Also, profitable Forex trading has to include risk management and discipline.

In Forex terminology, a bar is one of the ways to visualize price changes over a selected period. A bar consists of a vertical line high and low prices for the period , a horizontal line on the left the price at the beginning of the period , and a horizontal line on the right the price at the end of the period.

A pip is a minimum price change. This term is used specifically in Forex. In the stock market, a minimum price change is called a tick. Leverage is the ability to borrow funds from a broker to perform trades. Leverage of means that you need only 1 unit of currency in your account to buy units of currency. The broker provides the remaining 99 units. A requote is an offer from a broker to open a trade at a different price in case it's no longer possible to open it at the previously set price.

Generally, it happens due to sharp price movements or a poor connection between the trader's computer and the broker. A Forex trader is someone who makes transactions in the Forex market. They can open trades using their own funds or manage the investors' capital. Since Forex is a decentralized market, there is no specific place where transaction volumes are gathered and stored, unlike stock exchanges. There is only the so-called tick volume in Forex - it shows how many times the price has changed within a selected period.

It is the amount of trader's own funds that aren't currently in open positions. Free margin can be used by a trader to open new trades without closing existing ones. It is trading in the global foreign exchange market, where objects for transactions are mainly currencies. The subjects of Forex trading are all market participants that, in one way or another, carry out operations with foreign exchange.

Equity is the amount of funds in the trader's account, factoring in the current results of open trades. Usually, equity implies the trader's available funds based on trading results for a certain period. It is the minimum contract size for a Forex trade. It typically ranges from 10, to , units of a particular currency. Volatility is a measure of price changes over a selected period. High volatility implies that the price makes sweeping moves upward and downward.

Low volatility means the price rises and falls by a small number of pips. A pending order is an order to open or close a trade in the future under predetermined conditions. The main parameters are trade direction buy or sell , the type of order execution in the same direction of a trend or against it , and the asset price.

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