An introduction to FOREX Trading

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Forex stands basically for foreign exchange which means buying and selling currencies to make profit.There are 8 main standard currencies in forex trading. US$, GBP, JPY, AUD, NZD, CAD, CHF, EURO’s.Every currency pair have two currencies,1st one is the base currency and second is known as secondary currency like in eur/usd,eur is the base currency and US $ is the secondary currency.

    A long position is one in which we have to buy any currency pair first and then sell it at a higher price to get some profit.Similarly,a short position is a trade in which one have to sell a currency pair and buy it afterwards.Buying a pair means u r buying the base currency and selling the secondary currency,like buying eur/usd means u r buying euros by selling US$ and if the pair’s price go up after u buy,u will get profit and if it goes down,you will be having a loss.To take the profit or loss you again need to sell the pair which u bought. For example, like if u buy  eur/usd at 1.4200,and after sometimes it reaches 1.4210,u sell that pair back to get the profit,u will have made 0.0010$ profit on each euro you bought for usd.In the above example if you have bought 1000 euros,you would have made 1000×0.0010=1$ profit. similarly if you buy at 1.4200 and it goes down to 1.4190,then you will be loosing 1$ if you have bought 1000euros.

  PIP is the smallest move in a market price.The smallest move at the right end of the decimal place.For example in eur/usd if the price moves from 1.4200 to 1.4201,we say the euro/usd pair increased by  1 pip. You can call pip as the smallest movement in the market.

  Each company offering forex trading will have two prices for each pair.One is known as the bid price and the other one is the ask price.Bid is the price at which one can sell that pair while the ask is the price at which one can buy that pair for example the bid and ask for eur/usd presently is at bid=1.4200 and ask=1.4202.At the beginning of each trade one will have to face the loss equal to the gap between the bid and ask price and this gap is the money earned by the company from each trade any trader makes. The difference between bid and ask is known as “SPREAD”.

  The most important thing which I want to convey is that one should start forex by trading in practice account with virtual money and after sometime when he thinks he is able to trade well,then he shall start with real money.

  This is all the very basic which one shall need to know before starting trading in forex market.


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