The Basics of Forex for Newbies.

What is FOREX?

Forex trading is sometimes referred too as FX and is the largest traded financial market in the world and trades over 4 Trillion dollars per day. The size of the market is staggering and trades more money per day than the New York Stock Exchange or Nasdaq trades in a week.

Forex trading is simply the simultaneous buying of one currency and the selling of another currency. Traders around the world trade them in pairs and Forex trading is traded by both large institutional traders and private traders. Let us give you an example of a currency pair being traded. If you believed that the value of the USD was potentially going to increase vs the Australian dollar you would be buying USD on your trading platform and therefore at the same time the platform would be selling AUD in the hope its value would decrease. You will use a profit target and stop loss target just like all other forms of trading. Following are the most commonly traded currency pairs.

Forex currency symbols are three letters and the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.

Forex currency trading is traded through a broker.

You will open a foreign currency trading account with a licensed FX broker and they will provide you with a platform to execute your trades electronically via your computer. The trade takes only milliseconds to be executed and you can trade Forex from any computer with internet access. You will most likely base your decision to buy or sell a currency pair by looking at a live chart that will be tracking the price of the currency pair. See below for an example of what a chart looks like. The broker will provide you with both the platform and chart to view the various currency pairs.

With Forex trading your trading money, not anything physical.

There are various reasons why currencies fluctuate up and down however when you buy a currency, for example the AUD (Australian dollar) it’s like buying a share in the Australian economy as the price of the currency is a reflection of what other investors around the world think about the short term or long term future of the Australian economy.

Another example can be viewed this way. The exchange rate of one currency versus another currency is often the direct reflection of that country's (AUD vs USD) economy compared to the other.

When can I trade Forex?

Amazingly the Forex market is a 24-hour a day market that does not close except for a small amount of time over the weekends. Private traders, institutions and major banks are constantly trading foreign currency to generate cash and hedge positions they may have in other markets. Unlike the stock market that opens and closes at a certain time, you can likely find a currency pair 24 hours a day that is offering profit potential. Easy access and the profit opportunity is why Forex trading has become so popular. With as little as $500 you can control a position worth $25,000 and a small move of just 1% to 2% in the value of a currency can provide significant returns to a trader, potentially far greater than trading the stock market with cash.

What are the benefits of trading Forex?

Low or No commissions: Some markets are more expensive than others to trade however Forex is cheap in comparison to most. With Forex your broker will either charge you a flat commission per trade or a small fee called a bid and ask spread. The down side with trading with a broker who offers a bid and ask spread is that they can and do change the size of the spread, effectively making the fee you pay to trade higher. They can do this at any moment and they often widen the spread when the market becomes more volatile. This makes it more expensive for you to trade. We suggest you use a broker that offers a low flat commission per trade or low spreads, therefore you always know what your cost is. With Forex trading there are no clearing fees, no exchange fees, no government fees and no account keeping fees on your account. Brokers are compensated for their services via a flat commission or a bid and ask spread.

A 24-hour market: This allows you to choose the time of the day that best suits your lifestyle to trade. There is always an active currency pair moving throughout the world for you to trade 24 hours a day.

No market manipulation: Unlike the stock market and futures markets, the Forex market is so large that it is virtually impossible for one trader or institution to control the market and manipulate it to their advantage. Unlike stocks which can fall to zero in value, a currency will rise and fall based on the economic climate of the country which the currency represents, often rising and falling multiple times during a 24 hour period. This provides traders with volatility which if used correctly can produce large profit opportunities.

Leverage = Profit opportunity.

Leverage is basically the ability to use a small amount of money to potentially control a much large amount with the intention to profit. Forex offers traders the ability to invest small amounts of money such as $500 and control a position of $25,000, which is a 50:1 leverage. Of course leverage can also be a trader’s worst enemy if not used wisely as the same loss opportunity applies as profit opportunity. Traders need sound money management and a trading system that gives them more winning trades than losing trades to ensure they stay profitable. LTG GoldRock offers this through its exclusive live trading room and its Learning Centre. Increasing leverage increases risk.

Free Live charts

It is common place that once you have a Forex account open with a FX Broker they will provide you with Live charts for you to be able to watch the currency pair of your choice. Other markets require you to purchase live data or at times delayed data which can be costly per month.