Currency Trading: Understanding {the Basics|the fundamentals} of Currency Trading PLR_Articles

Investors and traders around {the world|the entire world} {are looking|are searching} to the Forex market as a new speculation opportunity. But, {how|just how|exactly how} are transactions conducted {in the|within the|inside the} Forex market? Or, what are {the basics|the fundamentals} of {Forex Trading|Forex Currency Trading}? Before adventuring {in the|within the} Forex market {we need|we want|we require} {{to make|to help make} sure|to ensure|to make certain|to be sure} we {understand the|see the} basics, otherwise {we will|we are going to} find ourselves lost where we less expected. {{This is|This might be|This really is|This will be|This is certainly} what|This is exactly what} {this article|this post|this short article|this informative article|this particular article} is aimed to, to {understand the|see the} basics of currency trading.

{What is|What exactly is} traded {in the|within the|inside the} Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. {The most|One particular} traded currency pairs are:

EUR/USD: Euro
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
USD/CHF: Swiss franc
AUD/USD: Aussie

These currency pairs {generate|make|provide} up to 85% {of the|regarding the|in the} overall volume generated {in the|inside the} Forex market.

So, {for instance|by way of example|for example|as an instance}, if {a trader|an investor} goes long or buys the Euro, she or {he is|she is|one is|he or she is} {simultaneously|at the same time} {buying the|purchasing the} EUR and selling the USD. {If the|In the event that|In the event the} same trader goes short or sells the Aussie, she or {he is|she is|one is|he or she is} {simultaneously|at the same time} selling the AUD and {buying the|purchasing the} USD.

The first currency {of each|of every} currency pair is referred {as the|once the} base currency, while second currency is referred {as the|once the} counter or quote currency.
Each currency pair is expressed in units {of the|regarding the|in the} counter currency needed to get one unit {of the|regarding the|in the} base currency.
{If the|In the event that|In the event the} price or quote {of the|regarding the|in the} EUR/USD is 1.2545, it means that 1.2545 US dollars {are needed|are essential} to get one EUR.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid (always {lower than|less than} the ask) is {the price|the cost} your broker is {willing to|prepared to} buy at, thus the trader should sell at this price. The ask is {the price|the cost} your broker is {willing to|prepared to} sell at, thus the trader should buy at this price.

EUR/USD 1.2545/48 or 1.2545/8
The bid price is 1.2545
The ask price is 1.2548

A Pip

A pip is the minimum incremental move a currency pair can make. A pip {stands for|is short for} price interest point. A move {in the|within the|inside the} EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move {in the|within the|inside the} USD/JPY from 112.05 to 113.10 equals 105 pips.

Margin Trading (leverage)

In contrast {with other|along with|along with other} financial markets {where you|for which you|that you} require {the full|the entire} deposit {of the|regarding the|in the} amount traded, {in the|within the|inside the} Forex market you require only a margin deposit. {The rest|All the rest} {will be|is going to be|will likely to be} granted {by your|by the} broker.

The leverage {provided by|offered by} some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position ({plus the|and the} floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size {in the|within the|inside the} Forex {market is|marketplace is} $100,000 USD.

{For instance|By way of example|For example|As an instance}, {a trader|an investor} {wants to|would like to|really wants to} get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

{Of course|Without a doubt|Needless to say} {it is not|it is really not} advisable to open a position with such limited funds {in our|within our} trading balance. {If the|In the event that|In the event the} trade goes against our trader, the position is to be closed {by the|of the} broker. This takes us to our next important term.

Margin Call

A margin call occurs when {the balance|the total amount} {of the|regarding the|in the} trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, {and so on|and so forth}.) At this moment, the broker sells off (or buys back {{in the|within the|inside the} case of|when it comes to} short positions) {all your|all your valuable} trades, leaving the trader “theoretically” {with the|aided by the|because {of the|regarding the|in the}|with all the} maintenance margin.

{Most of|Almost all of|Nearly all of} the time margin calls occur when money management is not properly applied.

{How|Just how|Exactly how} are the mechanics of a Forex trade?

The trader, after {an extensive|a substantial|a comprehensive} analysis, decides {there is|you will find} a higher probability {of the|regarding the|in the} British pound to go up. He or she decides to go long risking 30 pips {and having|and achieving} a target (reward) of 60 pips. {If the|In the event that|In the event the} market goes against our trader he/she will lose 30 pips, {on the|in the|regarding the} other hand, {if the|in the event that|in the event the} market goes {in the|within the|inside the} intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). {By the|Of the} time the market gets to either our target (called take profit order) or our risk point (called stop loss level) {we will|we are going to} {have to|need to} sell it {at the|during the|toward the} bid price ({the price|the cost} our broker is {willing to|prepared to} buy our position back.) {In order|to be able|So as|If you wish} {to make|to help make|which will make} 40 pips, our take profit level {should be|ought to be|must be} placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips {plus the|and the} 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s {very important|quite important} to understand {every aspect|every part} of trading. Start first from the very basic concepts, then {move on|move forward} to more complex issues {such as|for example} {Forex trading|Forex Currency Trading} systems, trading psychology, trade and risk management, {and so on|and so forth}. And {make sure|be sure} you master every single aspect before adventuring in a live trading account.