Getting Accustomed to the "Foreign" in Forex Trading

Below are some of the basic terms used in Forex trading that you will come across in your journey towards being a live trader.

Lets start with what you will encounter and need to know from the beginning of your journey and make more sense out of the terminologies instead of doing it alphabetically.

Currency symbols
USD - US Dollar
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
GBP - British Pound
CHF - Swiss Franc
JPY - Japanese Yen
* Note - These are all Major Currencies, all other currencies not listed above are considered minor.

Currency Pair
Since in Forex Trading you are essentially buying one currency and selling another simultaneously any and every transaction involves 2 currencies.
And a Currency Pair refers to the two currencies that make up a foreign exchange price rate. For example USD/JPY, GBP/JPY, EUR/USD etc

Major Currency Pair
A pair involving major currencies that include the U.S. dollar eg. EUR/USD, USD/CHF, GBP/USD, USD/JPY etc.

Cross Currency Pair
A pair involving major currencies that does not include the U.S. dollar eg. EUR/JPY, GBP/CHF, GBP/JPY etc.

Base Currency
This refers to the first listed currency in a Currency Pair. The Base Currency is always quoted as 1 unit against the second currency.

Counter Currency
This refers to the second listed Currency in a Currency Pair. The Counter Currency is quoted at the price Rate in terms of 1 unit of the first listed currency or the Base Currency.

Rate
This shows the price of one currency in exchange for another. For instance, EUR/USD at 1.3535 shows that 1 Euro is now worth 1.3535 in terms of US Dollar and that is the Rate at which a transaction for this Currency Pair can be effected in Forex Trading.

Ask (Offer) Price
The Ask Price is the price at which the market is willing to sell a specific currency in exchange for another during a particular time fraction in a Forex transaction. Hence, you as a trader can BUY the Base Currency in exchange for the Counter Currency to enter trade at the price quoted.

Bid Price
The Bid Price is the price at which the market is willing to buy a specific currency in exchange for another during a particular time fraction in a Forex transaction. Hence, you as a trader can SELL the Base Currency in exchange for the Counter Currency to enter trade at the price quoted.

Spread
This refers to the difference between the bid and ask prices. Also refered to as the Bid/Ask Spread, this is essentially what Forex dealers make from each and every transaction. As a trader this is also your cost of trading as you enter into each transaction and a lower Spread will mean a potential profit that is that much higher.

Pip
A Pip or a Percentage In Point is the smallest unit of price movement for any currency pair. Price movements are calculated from the fourth decimal place onwards i.e. 0.0001 to determine the profits/gains or loss made. Hence all profits/gains and losses are made in number of Pips.

BUY or Long position
A position where gains will be made when market prices increase and losses suffered when market prices fall. The position is said to be Long when you BUY the Base Currency in the pair to enter trade.

SELL or Short Position
A position where gains will be made when market prices fall and losses suffered when market prices rise. the position is said to be Short when you SELL the Base Currency in the pair to enter trade.

Open Position
An active trade (either BUY or SELL to enter trade) which remains open where it has not been offset by a corresponding opposite deal (SELL and BUY to exit trade).

Closed Position
A trade position (either BUY or SELL to enter trade) that is closed where it has been offset by a corresponding and opposite deal (SELL and BUY to exit trade) that is equal in volume.

Lot
A unit to measure the amount of the deal. A Standard Lot typically means you're transacting 100,000 units of a Currency Pair. A Mini Lot means 10,000 units while a Micro Lot equals 1,000 units.

Leverage
The ratio of the amount used in a transaction to the required security deposit. If the ratio is 400:1 it means you only need $1000 to enter a trade of worth up to $400,000 in value. The higher the ratio, the higher your leverage but also the risk!

Profit or Gain
Profits or Gains made through trading activities (BUY or SELL) which positions have been Closed following favourable Long or Short positions.

Loss
Losses suffered through trading activities (BUY or SELL) which positions have been Closed following unfavourable Long or Short positions.

Get friendly, even intimate, with above terms and you will surely find them handy in beginning your life as a Forex Trader! Good Luck!

ForexForREAL

Your Crucial 1st Steps in FOREX

As in starting any business, it is wise to learn the ropes before plunging in head first!

There are quite a number of avenues to this end, some reliable some not so reliable. Some can turn out to be expensive lessons in vain if you're not careful. Let's look at some of these avenues available one by one.

First, let's look at the set of tools we need to trade, our trading tools.

To start trading Forex, you will need a platform to trade with and trade in. Most brokerage houses offer a free trading platform with the opening of an account and more often than not the platform used is the MetaTrader 4. Some may have their own variation of the MetaTrader or even entirely different platforms altogether probably for differentiation purposes. However, you will never go wrong if you stick with MetaTrader. My experience with various different platforms tells me quite clearly which platform to place my trades with and in.

You can download the Metatrader 4 platform for free at www.metatrader4.com and start placing trades in demo mode with none of your hard-earned money. This way you gain invaluable experience without experiencing the pain of less than desirable trade results. Get it?

One more thing about platforms, the more you use any platform the more comfortable you'd be using it and the more adept you'd be in Forex Trading. And since MetaTrader is the most commonly adopted platform amongst brokerages, you'd be able to find one that offers the same platform should the need arise.

Having the tools is one thing and knowing how to use 'em is yet another but it is not the same as having the technical knowhow or expertise since this is going to be your field of business. After all, you would not want to invest in something you aren't 100% sure about, right? So, great, you've got the tools but how and where art thou gonna learn about the ins and outs of Forex Trading??

There are previews and seminars which you could attend usually free for the former but for the latter you'll have to be prepared for damages ranging from 5 to 6 grand! The previews are free, supposedly eye-opening talks about Forex, well at least for the uninformed, they are. They are also a vehicle to sell the hugely lucrative 5-star seminars.

Well before deciding to register for any of these life-changing money-magnet seminars, do all the homework you can and always, always ask for a program or course outline and Google them and do some research. Also try and get any assurance you can (guarantees would be ideal, but you don't see this word so often anymore these days do you?) on what you would be able to achieve at the end of the seminar or least of a long-term support programme way after the seminar. If there is no such assurance, it would very likely be a waste of your time and money! Mostly you'd end up with chunks and chunks of information usually already available on the web with a little effort and research. If you're lucky, you may get a list of strategies with which to ply your trade, so to say. In any case, a back-test on the strategies is essential to reveal their efficacies or the lack thereof. Otherwise, you'd be none the wiser.

And, if you do attend any such seminar all the homework you would've done will make you a more informed student and you'll be able to ask not only sensible questions but also questions that will make a difference in your understanding and grasp of what you'd be learning as well as in your investment in the seminar.

Ultimately, this will also have prepared you more sufficiently for your Forex business.

Next we shall look at Forex terms and jargons and what they mean to you as a trader.

Forex ForREAL

Forex As A Business, And It Really Is!

Do you know that Forex Trading, or trading in Foreign Exchange, is the most basic form of business there is in today's world?

It is so basic and simple that you do not need much to start your own Forex Trading business. For a start, let's look at what you do not need in your Forex business.

1. Employees. You sure do not need any employees unless you have so much fund to trade in that you require someone to monitor sections of the Forex market. Otherwise, you'd do quite well trading on your own.

2. Inventory. You might think that in any business you must trade in some kind of products or at least services. Well Good News! You do not need stocking up of inventory for you neither trade products nor services. In fact you are trading MONEY! Yes, you read me right there. You are buying one currency and selling another simultaneously! So, your capital is in fact your inventory.

3. Advertising and Promotion. Since you are not selling any products or services, you do not need to promote them. And since what you are selling and buying is the currency of a country you can be sure of a ready buyer and seller at any price. Of course, the obvious concern is to do that and at the same time generate some profits.

4. An Office. This is one business which you can operate quite comfortably in the coziness of your own bedroom :)

However, there are a few basic requirements before you can get your Forex Trading business up and running. First, you do need a reliable computer (a laptop is desirable for obvious mobility advantage) with even more reliable internet connection (you would want Broadband for peace of mind, after all it's money you're dealing in) and perhaps a cozy corner where you can function comfortably.

And that's it. It's all you need to start trading. See you guys in my next post.

Forex ForREAL