FOREX TRADING

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Foreign exchange, forex or just FX are all terms used to describe the trading of the world's many currencies. The forex market is the largest market in the world, with trades amounting to more than USD 1.5 trillion every day. This is more than one hundred times the daily trading on the NYSE (New York Stock Exchange). Most forex trading is speculative, with only a few percent of market activity representing governments' and companies' fundamental currency conversion needs.
Unlike trading on the stock market, the forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the forex market is a 24-hour market.

FOREX trading is a very specialized form of day trading. (Day traders invest by buying and selling securities, or opening and closing their market positions, on the same day.) Because of the high margins available in FOREX, investors can control large amounts of currency with relatively small outlays of actual cash. This leverage creates the potential for huge profits as well as huge losses. The would-be FOREX trader must remain aware that, just as with any other investment vehicle, financial loss is always a possibility.

The FOREX market provides a variety of unique and attractive investing opportunities. Study the articles of this section carefully, as well as other information and tools for the FOREX market. Safeguard yourself by becoming familiar with various risk management concepts. You'll need an account and trading platform with a reputable broker in order to begin trading. One such firm, known as Easy-Forex, offers full-service-, customizable-, and commission-free trading and support based on your experience and desired activity level. They give you full control over your account, even leverage and spread amounts.

A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross (for example, the Euro/US Dollar, or the GB Pound/Japanese Yen.). The most commonly traded currencies are the so-called “majors” – EURUSD , USDJPY , USDCHF and GBPUSD .

The most important forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled immediately, or “on the spot”. In practice this means two banking days.

24 hour trading
One of the major advantages of trading forex is the opportunity to trade 24 hours a day from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT). This gives you a unique opportunity to react instantly to breaking news that is affecting the markets.

Superior liquidity
The forex market is so liquid that there are always buyers and sellers to trade with. The liquidity of this market, especially that of the major currencies, helps ensure price stability and narrow spreads. The liquidity comes mainly from banks that provide liquidity to investors, companies, institutions and other currency market players.

No commissions
The fact that forex is often traded without commissions makes it very attractive as an investment opportunity for investors who want to deal on a frequent basis.
Trading the “majors” is also cheaper than trading other cross because of the high level of liquidity. For more information on the trading conditions of Saxo Bank, go to the Account Summary on your SaxoTrader and open the section entitled "Trading Conditions" found in the top right-hand corner of the Account Summary.

100:1 Leverage
Leverage (gearing) enables you to hold a position worth up to 100 times more than your margin deposit. For example, a USD 10,000 deposit can command positions of up to USD 1,000,000 through leverage. You can leverage the first USD 25,000 of your investment up to 100 times and additional collateral up to 50 times.

Profit potential in falling markets
Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. If the EURUSD declines, for example, it is because the U.S. dollar gets stronger against the Euro and vice versa. So, if you think the EURUSD will decline (that is, that the Euro will weaken versus the dollar), you would sell EUR now and then later you buy Euro back at a lower price and take your profits. The opposite trading scenario would occur if the EURUSD appreciates.

Benefits of Trading the Forex Market

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Trading the Forex market has become very popular in the last years. Why is it that traders around the world see the Forex market as an investment opportunity? We will try to answer this question in this article. Also we will discuss come differences between the Forex market, the stocks market and the futures market.

Some of the benefits of trading the Forex market are:

Superior liquidity.

Liquidity is what really makes the Forex market different from other markets. The Forex market is by far the most liquid financial market in the world with nearly 2 trillion dollars traded everyday. This ensures price stability and better trade execution. Allowing traders to open and close transactions with ease. Also such a tremendous volume makes it hard to manipulate the market in an extended manner.

24hr Market.

This one is also one of the greatest advantages of trading Forex. It is an around the click market, the market opens on Sunday at 3:00 pm EST when New Zealand begins operations, and closes on Friday at 5:00 pm EST when San Francisco terminates operations. There are transactions in practically every time zone, allowing active traders to choose at what time to trade.

Leverage trading.

Trading the Forex Market offers a greater buying power than many other markets. Some Forex brokers offer leverage up to 400:1, allowing traders to have only 0.25% in margin of the total investment. For instance, a trader using 100:1 means that to have a US$100,000 position, only US$1,000 are needed on margin to be able to open that position.

Low Transaction costs

Almost all brokers offer commission free trading. The only cost traders incur in any transaction is the spread (difference between the buy and sell price of each currency pair). This spread could be as low as 1 pip (the minimum increment in any currency pair) in some pairs.

Low minimum investment

The Forex market requires less capital to start trading than any other markets. The initial investment could go as low as $300 USD, depending on leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level.

Specialized trading

The liquidity of the market allows us to focus on just a few instruments (or currency pairs) as our main investments (85% of all trading transactions are made on the seven major currencies). Allowing us to monitor, and at the end get to know each instrument better.

Trading from anywhere.

If you do a lot of traveling, you can trade from anywhere in the world just having an internet connection.

Some of the most important differences between the Forex market and other markets are explained below.

Forex market vs. Equity markets

Liquidity

FX market: Near two trillion dollars of daily volume.

Equity market: Around 200 billion on a daily basis.

Trading hours

FX market: 24hr market, 5.5 days a week.

Equity market: Monday through Friday from 8:30 EST to 5:00 EST.

Profit potential

FX market: In both, rising and falling markets.

Equity market: Most traders/investor profit only from rising markets.

Transaction costs

FX market: Commission free and tight spreads.

Equity market: High Commissions and transaction fees.

Buying power

FX market: Leverage up to 400:1.

Equity market: Leverage from 2:1 to 4:1.

Specialization

FX market: most volume (85%) is made on major currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD.)

Equity market: More than 40,000 stocks to choose from.

Forex market vs. Futures market

Liquidity

FX Market: Near two trillion dollars of daily volume.

Futures market: Around 400 billion dollars on a daily basis.

Transaction costs

FX market: Commission free and tight spreads.

Futures market: High commissions fees.

Margin

FX market: Fixed rate of margin on every position.

Futures market: Different levels of margin on overnight positions than day time positions.

Trade execution

FX market: Instantaneous execution.

Futures market: Inconsistent execution.

All this makes the Forex market very attractive to investors and traders. But I need to make something clear, although the benefits of trading the Forex market are notorious; it is still difficult to make a successful career trading the Forex market. It requires a lot of education, discipline, commitment and patience, as any other market.

Learning Forex Trading - The 4 Main Types Of Order In The Forex Market

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One of the beauties of the Forex market is that, when it comes to buying and selling, traders have considerable flexibility in the manner in which they place their orders, allowing them to both maximize their profits and limit their losses.

Market Order

The simplest order is a market order in which the trader buys or sells a currency pair at the current market price. Because of the size of the market and its high liquidity there is very little slippage in the market and market orders are essentially guaranteed.

Limit Order

A limit order (sometimes referred to as a take profit order) allows the trader to specify a price at which he will take his profit and close his position. For example, if a trader has bought GBP/USD at 1.9430 he could place a limit order at 1.9530. If the price then subsequently reached this level his position would be closed and he would take his profit.

Stop Loss Order

A stop loss order is essentially the same as a limit order but is designed to indicate the maximum loss that a trader is prepared to take in a position. In the previous example the trader might place a stop loss order at 1.9410 thus limiting his losses to 20 pips should the market run against him.

Entry Order

Entry orders are orders that will only be filled if the market meets certain conditions specified in the order and are divided into limit entry orders and stop entry orders.

Limit Entry Orders

Suppose the current market price for the GBP/USD is 1.9430-35. In other words a trader can enter the market to sell at 1.9430 or buy at 1.9435. In this instance a trader could place an order to sell above the current market price at a level of say 1.9440 and this order would only be filled if the market price actually reached this level. Alternatively, he could place an order to buy at a price that is below the current market price - in this case below the buying price of 1.9435. So, if the trader placed a limit entry order to buy at 1.9420 this order would only come into effect if the price dropped to this level.

Limit entry orders are normally used when a trader believes that a currency is trading within an upper and lower range, out of which it is not going to break, and is looking for a reversal in the currency's price movement.

Stop Entry Orders

A stop entry order is often used when a trader believes that a currency which has been trading within a range is about to break out of that range and wishes to buy at a price above the current market place, or alternatively to sell at a price that is below the current market price.

For example our GBP/USD trader who can enter the market to buy at 1.9430 or to sell at 1.9435 could place an order to sell at say 1.9425. In this case the trader expects the currency to reach this level and then to continue to fall. Alternatively, he could place an order to buy at say 1.9440 again expecting the market to reach this level and continue on in the same direction.

Stop entry orders are normally used by traders who are anticipating large movements in the market.

This wide variety of orders gives traders considerable flexibility and, in particular, allows them to place orders and walk away from the market knowing that they have protected themselves to a certain extent from unexpected price movements and limited any potential losses.