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Introduction To Forex Trading
By Marquez Comelab
There are many markets: markets for stocks, futures, options and currencies. These are probably the most accessible markets for everyday traders like you and I. People easily understand the basics of trading shares. I began trading shares first and then I moved on to trading currencies.
If you do not know a lot about trading, allow me to introduce it to you. It is what I trade and I believe that it is one of the best markets to trade because of its efficiency. The transaction costs to execute a trade are minimal and most brokers provide you with the tools and data you need to make your trading decisions, they usually provide them for free. The market is open 24 hours a day which allows you to design your trading hours around your daily commitments. It is very volatile, which is great for those people who are looking for day-trading opportunities.
The foreign exchange market is the market in which currencies are bought and sold against one another. People may loosely refer to this market under different labels, including foreign exchange market, forex market, fx market or the market.
The foreign exchange market is the largest market in the world, with daily trading volumes in excess of $1.5 trillion US dollars. All transactions involving international trade and investment must go through this market because these transactions involve the exchange of currencies.
It is the most perfect market that exists because it has a large number of buyers and sellers all selling the same products. There is a free flow of information and there are little barriers to participate.
The exchange market is an over-the-counter (OTC) market which means that there is not one specific location where buyers and sellers can actually meet to exchange currencies. Instead, transactions are conducted by phone, fax, e-mail or through the websites of brokers who specialize in trading.
The major dealing centres at the time of writing are: London , with about 30% of the market, New York , with 20%, Tokyo , with 12%, Zurich , Frankfurt, Hong Kong and Singapore , with about 7% each, followed by Paris and Sydney with 3% each. Because of the fact that these centres are all over the world, foreign exchange traders can execute transactions 24 hours a day. The market only closes on the weekends.
THE MAIN 'PLAYERS' IN THE FOREX MARKET
The five broad categories of participants are: consumers, businesses, investors, speculators, commercial banks, investment banks and central banks.
Consumers, including visitors of countries, tourists and immigrants, do need to exchange currencies when they travel so that they can buy local goods and services. These participants do not have the power to set prices. They just buy and sell according to the prevailing exchange rate. They make up a significant proportion of the volume being traded in the market.
Businesses that import and export goods and services need to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered.
Investors and speculators require currencies to buy and sell investment instruments such as shares, bonds, bank deposits or real estate.
Large commercial and investment banks are the 'price makers'. They are the ones who buy and sell currencies at the bid-and-offer exchange rates that they declare through their foreign exchange dealers.
Commercial banks deal with customers on one hand, and with the Interbank or other banks, on the other hand. They profit by utilizing the bid-and-offer spread. The bid price is the exchange rate that the buyer is willing to buy and the offer price is the exchange rate at which the seller is willing to sell. The difference is called the bid-offer spread. They also make profits from speculating about whether the exchange rate will rise or fall.
Central banks participate in the foreign exchange market in their effective duty as banks for their particular government. They trade currencies not for the intention of making profits but rather to facilitate government monetary policies and to help smoothen out the fluctuation of the value of their economy's currency.
WHAT CURRENCIES
Forex - British Pound Vulnerable As Risk Appetite Wanes on European Banking Concerns
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.forextv.com/forex-news-story/forex-british-pound-vulnerable-as-risk-appetite-wanes-on-european-banking-concerns" style="font-size:1.2em">Forex - British Pound Vulnerable As Risk Appetite Wanes on European Banking Concerns</a>
<br> <span style="color:#888888;">ForexTV.com</span> - <span style="white-space:nowrap">3 hours ago </span>
<div style="width:80%;">The GBP/USD recovered a majority of its earlier losses after a better than expected US initial jobless claims report added to prevailing optimism. Double dip recession concerns for the world's ...</div>
</div>
Exchange Rates
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.onenewspage.com/news/Business/20100909/14878149/Exchange-Rates.htm" style="font-size:1.2em">Exchange Rates</a>
<br> <span style="color:#888888;">One News Page</span> - <span style="white-space:nowrap">3 hours ago </span>
<div style="width:80%;">ForexFlashNews Exchange rates: British Pound nipped by trade data: Foreign exchange markets guided by concerns over the strength ... http://bit.ly/cDC4ls 2 hours ago ForexFlashNews Exchange rates ...</div>
</div>
British Pound Still Bearish
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.dailyfx.com/forex/technical/elliott_wave/gbp-usd/2010/09/09/eliottWaves_gbp-usd.html" style="font-size:1.2em">British Pound Still Bearish</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">The GBPUSD has found support and has exceeded trendline resistance. What's more, the rally from the low is an impulse (5 waves). The risk is that the rally could have completed an expanded flat ...</div>
</div>
Exchange rates: British Pound decline resumes
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.economy-news.co.uk/pound-exchange-rates-09201009.html" style="font-size:1.2em">Exchange rates: British Pound decline resumes</a>
<br> <span style="color:#888888;">Economy News</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">"The Pound fell 0.8% against the Euro this morning, while the UK currency also lost ground versus the majority of the 16 most actively traded currencies, after the Bank of England kept interest ...</div>
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British Pound Bias Calls for Weakness
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.dailyfx.com/forex/technical/ssi/gbp-usd/2010/09/09/ssi_gbp-usd.html" style="font-size:1.2em">British Pound Bias Calls for Weakness</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">GBPUSD ?The ratio of long to short positions in the GBPUSD stands at 1.22 as nearly 55% of traders are long. Yesterday, the ratio was at 1.03 as 51% of open positions were long. In detail, long ...</div>
</div>
Forex Sentiment Shift Points to EURUSD, GBPUSD Losses
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.dailyfx.com/forex/technical/ssi/table/2010/09/09/ssi_table_story.html" style="font-size:1.2em">Forex Sentiment Shift Points to EURUSD, GBPUSD Losses</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">Choppy US Dollar price action has made for similarly indecisive moves in forex crowd sentiment, but the most recent move towards USD shorts against the British Pound and Euro leaves us modestly ...</div>
</div>
Option Traders Betting on Agriculture and the British Pound
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<a href="http://www.bloggingstocks.com/2010/09/09/option-traders-betting-on-agriculture-and-the-british-pound/" style="font-size:1.2em">Option Traders Betting on Agriculture and the British Pound</a>
<br> <span style="color:#888888;">BloggingStocks</span> - <span style="white-space:nowrap">10 hours ago </span>
<div style="width:80%;">Option traders appear to be setting up for a bullish move on Market Vectors Agribusiness ETF (MOO). Traders plowed into 2,601 new call option contracts -- 20.81 times the average volume -- on the ...</div>
</div>
British Pound Holds Range as BoE Maintains Current Policy
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2010/09/09/09-09-10.html" style="font-size:1.2em">British Pound Holds Range as BoE Maintains Current Policy</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">11 hours ago </span>
<div style="width:80%;">The British Pound showed little reaction to the Bank of England interest rate decision as the MPC held the benchmark interest rate at 0.50% and maintained its asset purchase target at GBP 200B ...</div>
</div>
Exchange rates: British Pound nipped by trade data
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.economy-news.co.uk/exchange-rates-09201009.html" style="font-size:1.2em">Exchange rates: British Pound nipped by trade data</a>
<br> <span style="color:#888888;">Economy News</span> - <span style="white-space:nowrap">14 hours ago </span>
<div style="width:80%;">Foreign exchange markets guided by concerns over the strength of the Eurozone, meanwhile the British Pound reacts to the latest UK trade data. The Pound Dollar exchange rate is 0.446% lower on the ...</div>
</div>
Great British Pound vs. Japanese Yen (2010-09-09)
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.ibtimes.com/articles/60819/20100909/great-british-pound-vs-japanese-yen-2010-09-09.htm" style="font-size:1.2em">Great British Pound vs. Japanese Yen (2010-09-09)</a>
<br> <span style="color:#888888;">International Business Times</span> - <span style="white-space:nowrap">16 hours ago </span>
<div style="width:80%;">We will make it very simple today as we witnessed a sharp incline yesterday affected by the bullish harmonic AB=CD pattern of the four hour interval that was discussed in details in yesterday's ...</div>
</div>
TO TRADE IN THE FOREX MARKET
You can trade any country's by exchanging it to another country's currency, however the list below are the ones that are the most popular and are usually made available by most online brokers for you to trade.
ISO * CODE
| Currency
| Symbol
| AUD
| Australian Dollar a.k.a. 'Aussie' or 'Oz'
| A$
| CAD
| Canadian Dollar
| Can$
| CHF
| Switzerland Franc a.k.a 'Swissi'
| SwF
| DKK
| Denmark Krone
| Dkr
| EUR
| European Dollar a.k.a 'Euro'
| €
| GBP
| Great Britain Pound a.k.a ' Sterling ' or 'Cable'
| £
| HKD
| Hong Kong Dollar
| HK$
| JPY
| Japanese Yen
| ¥
| MXN
| Mexican Peso
| Mex$
| NOK
| Norway Krone
| NKr
| NZD
| New Zealand Dollar a.k.a 'Kiwi'
| NZ$
| PLN
| Poland Zloty
| z dashed l
| SAR
| Saudi Arabia Riyal
| SRls
| SEK
| Sweden Krona
| kr or Sk
| SGD
| Singapore Dollar
| S$
| THB
| Thailand Bhat
| Bht or Bt
| USD
| United States Dollar
| $
| ZAR
| South Africa Rand
| R
| | * ISO-International Organization for Standardization |
To trade the currencies above, you need to trade pairs. Think of these pairs as your trading instruments – instruments that you can buy or sell. Listed below are the most popular pairs that people trade:
About the Author
Marquez Comelab is the author of the book: The Part-Time Trader . It is a guide for working men and women interested in trading currencies in the forex market. It explains how to create your own trading methodology, market analysis, tools, trading systems, risk management strategies, discipline and psychology. See: http://marquezcomelab.com. His other articles can also be found at http://thefreedomtochoose.com; along with other helpful articles.
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This is the process where a trader simultaneously buy one currency and sell another.
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