Monday, September 28, 2009


I f you are a beginner in FOREX trading, this is the place to start. The following articles will help you gain an understanding of the FOREX market and how it works.


FOREX trading is typically done through a broker or market maker. As a FOREX trader you can choose a currency pair that you feel is going to change in value and place a trade accordingly. For example, if you had purchased 1,000 Euros in January of 2005, it would have cost you around $1,200 USD. Throughout 2005 the Euro’s value vs. the U.S. Dollar’s value increased. At the end of the year 1,000 Euros was worth $1,300 U.S. Dollars. If you had chosen to close your trade at that point, you would have made $10


FOREX trades can be placed through a broker or market maker. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank M

arket to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.


There are m

any countries in world; so results different currency pairs. Among all of them, these are the popular in currency trading:


Five Majo

r Currencies are:

U.S dollar - The United States dollar is the world's main currency – an universal measure to evaluate any other currency traded on FOREX.

Euro- Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the U.S. dollar, the euro has a strong international presence stemming from members of the European Monetary Union.

Japanese Yen- The Japanese yen is the third most traded currency in the world; it has a much smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the world, practic

ally around the clock.

British Pound - Until the end of World War II, the pound was the currency of referen

ce. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies.After the introduction of the euro, Bank of England is attempting to bring the high

U.K. rates closer to the lower rates in the euro zone.

Swiss Franc - Swiss franc is the only currency of a major European country that belongs neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively small, the Swiss franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance.

To have a well focusing, you have to concentrate on less than 5 currency pairs( prefer

red the U.S. cross-currency pairs.)

Some traders

see FOREX as a business, and some see it as a fortune. And even some traders think forex is an art. But anyway, its highly recommended to use pivot system in your trading plan or else you are trading blind.

(ii) Forex Quotes

Reading a foreign exchange quote is simple if you remember two things:

  1. The first currency listed is the base currency
  2. The value of the base currency is always 1.
As the centerpiece of the FOREX market, the US dollar is usually considered the base currency for quotes. When the base currency is USD, think of the quote as telling you what a US dollar is worth in that other currency.

When USD is the base currency and the quote goes up, that means USD has strengthened in value and the other currency has weakened. Rising quotes mean a US dollar can now buy more of the other currency than before.

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(iv) Leverage & Margin

Leverage trading, or trading on margin, means you aren't required to put up the full value of the position.

Forex trading offers more leverage than stocks or futures - up to 200 times the value of your account. Of course keep in mind that increased leverage also increases your risk.

(v) Swap Rates

Another important component to remember when trading forex is the SWAP (Also known as rollover) rates. As mentioned before when trading a currency pair you are borrowing the bottom pair and purchasing and holding the top pair. So if you are trading the GBP/JPY you are actually purchasing the GBP and borrowing the Yen.

As you know, when holding a currency in an account you are receiving interest and when borrowing a currency you are paying interest. Because forex trading is highly leveraged and you are theoretically controlling large amounts of money, the SWAP rates accumulate and need to be accounted for in your trading. Typically forex dealers either pay or charge you the SWAP rate depending on the position you are holding.

Let's look at the GBP/JPY example. When taking a position in the GBP/JPY you are borrowing the Japanese Yen at a low interest rate and using it to purchase the Sterling which pays a higher interest; so when you are long this pair you will receive daily interest from your forex dealer and when you are short you will be paying daily interest. The forex dealer will always charge a little more than they pay when it comes to rollover rates in exchange for facilitating the process

(source: Taken from ,

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