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Forex Basics
I hope you have already gone through some of the forex websites. If not, you may click on some of the Google sponsored sites and read the information given in those sites. Assuming that you all are familiar to stock market, I will start with a comparison to stocks. Both stocks and forex are considered as high risk/high returns business. Unlike stock markets which are different for different countries, forex is one single market and daily turnover of the market is approximately USD 3 trillion! Market is open from Monday to Friday and its a 24 hours market. Everybody needs foreign exchange...whether you are an exporter or importer or a tourist...If a UK company has to takeover an Australian company they will have to sell pound and buy Australian dollar which may make Pound weaker against AUD. If you are an exporter you repatriate your funds from other countries in euro or dollar or any other currency and convert it into your local currency. This is one of the reasons why yen becomes strong against dollar before their annual book closing. Japan has a trade surplus against US. (exports>imports) Almost all the hedge funds, mutual funds, pension funds or any investment companies and individual investors trade in forex and take advantage of the currency movements. Simple logic is buy low sell high. short selling is possible here. In stocks you may short sell ...and buy back on the same day before the market closing and may make some profits or loss. you will not be allowed to carry forward your trade for next day. (it is possible in some countries or with some brokers) but in forex you can sell euros against dollars (u need not have euros) and close the deal (buy euro against dollar) after 15 days or a month and take your profits. So whichever side market moves you can make money. You need not worry if euro crash or yen crash or any other currency crashes. There is only one reason for a person to loose in forex. I call it as KK's hope and fear theory. When the market goes against him he will keep the position hoping that market will bounce back. when the market is in his favour he will have a fear that market may bounce back and he will loose the profits. HOPE lets him keep a loosing position till he looses 99% of the account and due to fear he will grab small profits and miss out the big profits. There is only 1 factor which makes forex riskier than stocks. In stocks a person is generally allowed to buy 4 times more than his deposit value. That is with USD 100 your broker may allow you to buy stocks worth USD 400. But in forex you can buy USD 10,000 worth currency for a deposit of USD 100 and people who become greedy tend to buy more and loose the account. That is where your money management skills come into picture. You don't have to be a technical analyst and economics expert to trade in forex. I know at least a dozen chartered accountants who have lost money in stock market. All you need to learn is some money management, risk management and emotional management skills. let's get into trading basics now. In forex currencies are bought in lots which is normally USD 100,000. Few American companies recently introduced mini forex where you can buy small lots of USD 10,000. As a beginner I suggest you to go for mini forex trading. With a deposit of USD 5,000 the broker will allow you to buy currencies worth USD 500,000. But to be on the safe side lets keep USD 1,000 per lot. (1lot = USD 10,000) Lets concentrate only on major currencies. currencies are always quoted in pairs. buying euro/dollar means buying euro and selling dollar. selling dollar/yen means seling dollar against yen. if dollar/yen goes up it is dollar which becomes stronger against yen. if euro/dollar goes down, it is euro which is becoming weaker. It always the first currency against 2nd currency you buy 1 euro/usd at 1.2200 and sell at 1.2201 dollar/yen is at 105.50 now If you understand this theory, you are now ready to start demo trade If you visit the link 'forex brokers worldwide' in my site you will see different websites of forex brokers. Fx Solution is one of the major forex broker and one of few companies which offer mini forex trade. To begin with, lets go for a demo trade with them. when you decide to go for a real trade you may open account with any of the licensed forex broker. Download the trading station from here and install the software Register for a demo trading and they will give you your login name
and password. The first window gives you the currency price. click on the price and buy a currency. if u r seeing euro price as 1.2240/45 it means you get 1.2245 for buying and 1.2240 for selling. if you think euro will go down from here click on the selling price and sell 1 lot. When u sell, your open position window shows the details like time of purchase/sold, quantity, current price, current loss/profit etc. You may click on the blank space below stop and leave a price which will be your stop loss price. for example if u leave the price as 1.2270, the maximum loss you make in this trade is 30 dollars. this is how you limit your losses. you may click on blank space below limit and mention the price where you want to take profits. just do some trades to get acqauinted to the software. do not worry about profit or loss now. Goto http://www.forexveda.com/charts.html. Watch the charts and take
your own decisions and do some trades to get acquinted to the software.
u may see 1 hour chart for short term trades (short term = 1 min to
few hours) You can leave a limit order buy clicking on entry. for example if the currency is at 1.1750 and u want to sell at 1.2280 and u have no time to sit and watch the market, you may just click on entry and select the currency, quantity and price and click on ok. the moment the price reaches the level it will be bought or sold at the specified price. lesson 2 |