FX:ST Currency Made Simple Forex | currency trading | forex trading | forex broker

I have decided to I’m going to learn about FX trading and post what i have learnt online in the hope that what i have learnt can be helpful to others.  I’m assuming that like me you are looking to trade currency either for profit or just as a hobby

All you'll need is a computer and at a later date if you decide to trade for real some money to invest. 

I started out by looking for tutorials and learning materials online and I noticed that a lot of brokers offer a free practice account with a trading platform.  This is a fully functioning software program that allows you to make trades to buy and sell currency just as if you were trading for real.  The practice account has a certain amount of money credited to allow you to familiarise yourself with placing orders and trading.  This account usually last for 30 days and is offered in the hope that when you do start trading for real you will choose that particular broker to trade with.

I chose AC-Markets, a broker based in Switzerland.  It was simple procedure and to download and install the software program it allowed me to make trades straight away.  I quickly realised that my trading was complete guesswork and there were a lot of functions that I wasn’t using.  So before you start getting hooked on trading you should learn a few first day basics.

Currencies are quoted in pairs. 

For example EUR/USD or USD/JPY.  The first currency is called the base currency as it is the basis of what you are buying and selling.  So when you buy EUR/USD  you are buying Euros and paying for it in USD (i.e. by trading/selling USD).   This means the quote is given for 1 unit of the base currency eg. a quote of 1.2775 for EUR/USD means that the price of 1 Euro is 1.2775 USD

The changes in the market are measured in Pips

The smallest movement a currency can make is called a pip (percentage in point) or simply point.  This is usually the rate given to 4 decimal places.  E.g. a movement from 1.2775 to 1.2776 is a movement of one pip.

Trades are done in pairs and are called positions

Each transaction has 2 sides, so when you trade to purchase Euros with USD you will at a later point trade back to sell your Euros for USD, ideally when the rate has changed in your favour.  Because of this 2 sided system you can also sell before you buy if you think the price is going to go down.  As a result, it is said you are taking a position when you trade.  If you purchase a currency believing the rate is going to go up, it is said you are taking a long position and if you sell a currency believing it will go down it is called taking a short position.

Margin

Trading on margin, also known as trading on leverage, allows you to trade higher amounts than the actual capital you invest.   This is because compared to the total value of the currency the changes in the currency rate are quite small.  For example if you purchase $10,000 worth of Euros at 1.2775 ( you now have approx 7,827 Euros) and the Euro goes up 100 pips to 1.2875 before you sell, you would have only made just over $78. 100 pips is quite a large movement yet despite this the profit is relatively small.  As a result, since you only need to cover your potential loss, most brokers allow trading fairly high margins.  If you had bought at 10:1 margin you could have bought $100,000 worth of Euros and your profit would have been $780 when you closed your position.  Bear in mind however that trading on margin is a double edged sword and while it can amplify your profits it can also amplify your losses in the same way.  Most brokers will automatically close your positions when your position goes below your invested capital so you only lose what you have invested and never end up owing the broker money.

That should be enough for your first day to allow you to practice a few trades but I will be writing more articles about fx trading over the next few days.