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THE FOREX MARKET IS THE WORLD’S LARGEST FINANCIAL MARKET.
If you have traveled, you probably already have forex trading experience: when you buy the currency of your destination country while paying with your own currency, that is forex trading. Forex traders buy and sell currencies for profit or to protect investments. An estimated USD 5 trillion is traded
daily, most of it speculative.
The forex market is the world’s largest financial market, and since trading is between market participants, there is no «open» or «close» of market except on weekends.
In other words, forex trading occurs from Sunday 22:00 GMT until Friday 22:00 GMT. You might enjoy trading the major currency pairs, or have knowledge about the strength of an exotic currency, or a feel for commodities; some opportunities present themselves to people who keep up with news and events, while others require patient analysis. Traders bring their own strengths and preferences to their trading and, over time, create their own trading style.
WHAT AFFECTS THE FOREX MARKET?
People trade forex based on expectations of the future, which are shaped by many factors.
Each market participant has their goals; some are companies who are hedging currency exposure to protect their business; some are fundamental traders who focus on factors that affect the strength of whole economies; others are technical traders who look for price patterns to trigger their trades. In addition, there are central banks, hedge funds and financial institutions who all bring different goals and interpretations to their trading. The various market participants place different weight on information about interest rates, policy (laws), economic announcements and natural or man-made events: all affect expectations and thus market movements. Remember that in the forex market, you can profit from down-turns as well as rising prices.
HOW A FOREX TRADE WORKS.
Similar to your vacation pocket money, forex trading always involves two currencies. The base currency is the one you are buying or selling, and its price is given in the quote currency:
Imagine that you believe the EUR will rise in value relative to the USD. You buy EUR 100’000, paying USD 105’000 from your trading account (regardless of the account’s denomination). The EUR indeed rises a great deal, to 1.0525 at the end of the day. Therefore, when you close your position by selling the EUR 100’000, you receive USD 105’250, earning USD 250.
You might ask, «where did I get USD 105’000 from in the first place?» and the answer might be that you have USD 5’000 in your trading account, and your broker enables you to borrow USD 30 for each US dollars in your account. With this 30:1 leverage, you can enter forex positions with values of up to USD 150’000. If you did have USD 5’000 in your account and earned USD 250, you earned 5% of your account value on this trade.
Now imagine that in the example above, the Euro did not rise; indeed instead it fell to 1.0475 at the end of the day. Therefore, when you close your position by selling the EUR 100’000, you receive USD 104’750, loosing USD 250
MARGIN
Margin trading allows you to buy or sell a bigger from a given trade.A 3.33% margin means that you amount than you’d be able to do normally. Leveraging can command positions that are 50 times greater amplifies price changes and thus the profit or loss than the funds in your account.
LOT
A lot is a unit used in trading, especially on MetraTrader MT4/MT5 platforms. At deriv, 1 lot is 100’000 of the base currency. In other words, in the example,
1 lot is traded.
1 lot = 100’000 units of base currency
1 mini-lot = 10’000 units of base currency
1 micro-lot = 1’000 units of base currency
It is possible to trade less than 1 lot. For example, to trade 10’000 of the base currency (called a mini lot), type 0.1 lot into the Volume field. To trade 1’000 of the base currency (called a micro lot), write 0.01 lot. The smallest enabled trade size is a micro lot. Trade sizes are given in lots on the trading platform, so keep this in mind!
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