The Ins And Outs Of Trading Currencies - Forex

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The ins and outs oftrading currenciesAN INTRODUCTION TO TRADING CURRENCIESA FOREX.com educational guideHK krHK FOREX.com is a registered FCM and RFED with the CFTC and member ofthe National Futures Association (NFA # 0339826). Forex trading involvessignificant risk of loss and is not suitable for all investors. Spot Gold andSilver contracts are not subject to regulation under the U.S. CommodityExchange Act. *Increasing leverage increases risk.

Contents1Introduction: the bulls & the bears3 What is forex trading?4 Two trade oportunities9 What currencies can I trade?11 Pips, lots and leverage14 Start trading todayForex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

1IntroductionWhether you’re a power trader or a financialnewbie, you’re likely to hear just about anything—market movements, outlooks and stocks—beingdescribed as bullish or bearish.Traditionally, bull markets offer traders an opportunity to enter a tradeby buying a financial product at a low rate and closing the trade fora profit by selling it at a higher rate. Conversely, bear markets offerthe opportunity to enter a trade by selling at a high rate to close thetrade by buying at a lower rate. Although, many financial products haverestrictions on selling to capitalize on bear market opportunities.However, forex does not have these restrictions. Furthermore, the forexmarket is open 24/5 and is the most traded market in the world withan average daily turnover of more than 5 trillion,* giving you tradingopportunities in any market conditions at any time of day.*April 13 Interbank Forex Market average Daily Volume from Bank for International Settlements.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

2Let’s talk about the bulls and the bears.A BULLISH TRADERA BEARISH TRADERBuys a financial product to sell at ahigher price.Sells a financial product to buy at alower price.In a traditional bull marketStocks and bonds are rising in value.Traders buy to enter the market andfind profit potential.In a traditional bear marketStocks and bonds are decliningin value. Traders sell to exit themarket and minimise losses. Manytraditional markets don’t allowtraders to enter the market byselling, or it is overly complicatedand costly.IN THE FOREX MARKETThe value of a currency in relation to another is constantlyin flux. One currency is always strengthening againstanother (bullish), and therefore, one currency is alwaysweakening against another (bearish). Because of this, youhave equal opportunity to buy or sell to enter the market.IT’S TIME TO RETHINK EVERYTHING YOU KNOWABOUT BULLS AND BEARS.You may not realize it, but the bulls and bears aren’t atodds. In fact, they represent two trading opportunities inthe forex market.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

3What is forex trading?Also known as foreign exchange or currency trading, forex isone of the most traded markets in the world. In forex trading,traders hope to generate a profit by speculating on the valueof one currency compared to another. This is why currenciesare always traded in pairs—the value of one unit of currencydoesn’t change unless it’s compared to another currency.CURRENCY PAIRS APPEAR LIKE THIS:EUR/USDEuroU.S. DollarThe first currencylisted is the basecurrency.The second currencyis called the quoteor terms currency.A SAMPLE QUOTE FOR THIS PAIR COULD BE:1.33820The base currency is always worth one.The quoted price shows how much of thequote currency you’ll get for one unit ofthe base currency. So in this case, 1 EURis worth approximately 1.33 USD.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

4Two trade opportunitiesSCENARIO 1:BUY TRADESCENARIO 2:SELL TRADEIf you believe the current value of the euro isstrengthening against the US dollar, you mightenter a trade to buy euros in the hopes that thecurrency’s value will become stronger comparedto the US dollar. In this scenario, you think theeuro is bullish (and the US dollar is bearish).Conversely, if you think the current value of theeuro will weaken against the US dollar, you mightenter a trade to sell euros in the hopes that thecurrency’s value will become weaker comparedto the US dollar. In this scenario, you think theeuro is bearish (and the US dollar is bullish).WHAT YOU SHOULD KNOWThe buy or sell action you take to enter a trade always applies to the base currency. The opposite action automaticallyapplies to the quote currency. So, if you buy the EUR/USD, this means you’re buying euros and selling US dollars. If yousell the EUR/USD, you’re selling euros and buying US dollars.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

5EVEN IF YOU’RE NEW TO FOREX,YOU MAY HAVE TRADED CURRENCIES BEFORE.For example, if you’ve ever traveled to another country, you hadto exchange your native currency for that of the country you werevisiting. At that time, you probably realized that one unit of yourcurrency was not exactly equal to one unit of the other country’scurrency: its value was either more or less.SELLING US DOLLARS AND BUYING JAPANESE YENExchange Rate Difference 1 102DID YOU KNOW?When you exchange currencieswhile travelling in a foreigncountry, you are technically sellingyour currency and buying that ofthe country you are visiting.SELLForex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.BUY

6EXCHANGING CURRENCIES ISN’T JUST FOR TRAVELERS.THE PRICE DIFFERENCE IS SOMETHING YOU CAN TRADE. In the global economy, thousands of business transactions takeplace every day that require organizations to exchange the value ofone currency for that of another. When a United States manufacturerbuys Japanese steel, they need to convert dollars to yen to pay thebill. A British clothing retailer converts pounds to euros to pay forgarments from a French textile company. In every exchange, pricesneed to be adjusted because one currency is typically weaker (hasless value) while the other is stronger (has more value).WITH SO MANY CHANGES TAKING PLACE, CURRENCY VALUESARE RARELY STATIC.Throughout the course of the day, the value of one currencycompared to another can change in response to political news,economics and interest rate changes. This means that a currencythat was weaker than another in the morning may be stronger bythe afternoon. These frequent changes in the value of currency arewhat drive forex trading and a trader’s trading opportunities in thecurrency markets.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

7DID YOU KNOW?THE FOREX MARKET IS BIG. REALLY BIG.High trading volumesincrease traders opportunitiesto get in and out of theWhile the worldwide bond and stock markets have adaily volume in the billions of dollars, the forex markethas a daily volume of over US 5 trillion. This can lead tomore trading opportunities.markets quickly. The abilityto enter or exit the marketefficiently is called liquidity.US 816 BILLIONUS 226 BILLIONUS 5.3 TRILLIONFOREXBONDSSTOCKSUS 5.3 TRILLION IN VOLUME*US 816 BILLION IN VOLUME*US 226 BILLION IN VOLUME*24 HOURS A DAY8 HOURS A DAY8 HOURS A DAY5.5 DAYS A WEEK5 DAYS A WEEK5 DAYS A WEEK*Taken from the Bank of International*Taken from Securities Industry and FinancialSettlement April 2013.Markets Association 2013.*Taken from BATS Global Markets April 2013.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

8FOREX CAN BE TRADED 24 HOURS A DAY, 5.5 DAYS A KYOLONDONNEW YORKAt 5pm ET on Sunday evening, financial markets open in the Pacific(Australia, New Zealand, Japan and various Asian countries). As thosebegin to close, markets in the Middle East and Europe start to open.When Europe is in mid-session, financial markets across the Americasopen. This pattern continues until 5pm ET on Friday when the Americanfinancial markets close for the weekend. The consistent closing andopening of markets around the globe provides around-the-clock accessto traders, 5.5 days a week. This is why you may hear many people referto forex as a global market.WHO TRADES FOREX?The financial community, from big banks and hedge funds to small andmedium-sized traders, understands the wide range of opportunities inthe forex market. And since the markets are open longer than traditionalmarkets, you can trade when it’s convenient for you.₁Bank of International Settlements Triennial FX Report, 2007Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

9What currencies can I trade?You can trade almost any currency—depending on whichcurrency pairs your dealer offers. FOREX.com has over50 pairs to choose from. As a new trader, however, youwill probably make your first trade with eight of the mostcommonly traded currencies in the world.CADCanadian Dollar GBPEURGreat British PoundEuropean Euro JPYJapanese YenAUDAustralian DollarUSDCHFNZDUnited States DollarSwiss FrancNew Zealand DollarForex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

10WHEN YOU START TO TRADE, YOU’LL BEGIN TO RECOGNIZETHE EIGHT MAJOR CURRENCIES BY THEIR CODE.US DCOUNTRY NAMECURRENCY NAMEUSD US DOLLARNZD NEW ZEALAND DOLLARCHF SWISS FRANCAUD AUSTRALIAN DOLLARGBP BRITISH POUNDCAD CANADIAN DOLLARJPY JAPANESE YENEUR EUROForex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

11By now, you may feel comfortable and even a little excited abouttrading forex: you know who trades it, when to trade it, and whatcurrencies are available. In this section, we’ll discuss some conceptsyou need to know before you trade your first currency pair.EUR/USD PRICE EXAMPLE1.33820Represents one pipWHAT IS A PIP?Typically in forex, currency pairs display their prices withfour decimal points. A few, such as those that involvethe Japanese yen, display two decimal places. No matterwhat currency pair you’re trading, the last large numberbehind the decimal always represents a pip, the mainunit price that can change for the currency pair. As youtrade, you’ll track your profits (or losses) in pips.At FOREX.com, you’ll see a smaller number behind thepip—this is called a “fractional pip” and offers even moreprecise pricing. Sometimes, the fractional pip will be a0—that is, there will be no fraction of a pip being quotedat that time. One unit of movement represents one pip.That may seem small and you may be wondering howforex can be worthwhile if all you’re speculating on is asmall fraction of a currency. Since forex is traded in largevolumes, called lots, these fractions can add up veryquickly. Quite simply, the higher volume you trade themore each pip will be valued.Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

12WHAT IS A LOT?In forex, a lot is a standard unit of measurement. At most forex dealers,one standard lot usually equals 100,000 units of currency.At FOREX.com you are able to trade in intervals of 1,000 units, but youare not required to invest 1,000 to do so because forex is leveraged.Whenever you place a trade, you start with your desired volume. Let’ssay 10,000 for this next example.1 LOT 100,000WORTH OF CURRENCYWHAT IS LEVERAGE?One of the benefits of this market is the ability to trade on leverage. Youdon’t need 10,000 in your account to trade the EUR/USD. Currency pairscan have a leverage ratio of up to 50:1. This means you can control a largeposition ( 10,000) with a small amount of money ( 250).Many traders find the leverage that most forex dealers offer very appealing.Nonetheless, you should know that trading this way can also be risky. It canproduce substantial profits as easily as it can cause substantial losses.CURRENCY PAIRS CAN HAVEA LEVERAGE RATIO OF UP TO50:1Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

13SO HOW DO PIPS, LOTS AND LEVERAGE WORK TOGETHER?Let’s imagine you just bought 100,000 EUR/USD on 50:1leverage.CALCULATING YOUR EARNINGSYou purchased at 1.30000 then closed the trade by sellingat 1.30200. This means you’ve earned 20 pips.0.0001 X 100,000 US 10 PER PIP0.0001 X US 100,000 US 10 per pipFor your 20-pip trade, you would have earned US 200.For your 20 pip trade, you would haveearned US 200.(ONE LOT)ONE LOT TRADED ON A STANDARD ACCOUNT(Lot size 100,000 with a 50:1 leverage ratio)SELL1.30200 11 PIPSEUR/USD 20 PIPS 7 PIPS-1 PIP 5 PIPS-2 PIPSBUY1.30000Not all of the pips you’ll earn willbe worth US 10. The value of a pipdepends on the lot size of yourtrade, how many lots you’re trading,the currency pair and your accountcurrency.While you can manually calculatethis or use online pip calculators tolearn the value of a pip before youtrade, most trading applicationsautomatically calculate pip values andconvert them to the currency you’retrading.DID YOU KNOW?At FOREX.com, we offer a wide range of tools to help you makethe most of every opportunity. Learn more about our toolsForex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

14Get started with FOREX.comOPEN A LIVE ACCOUNT.Get access to exclusive market commentary, trade ideas,and technical analysis when you open an account withFOREX.com. Our application only takes five minutes.GET STARTEDOPEN A DEMO ACCOUNT.Test your trading strategy and see our competitive pricingwith a risk-free demo account.SIGN UPForex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.

FOREX.com is a registered FCM and RFED with the CFTC and member of theNational Futures Association (NFA # 0339826). Forex trading involves significantrisk of loss and is not suitable for all investors. Spot Gold and Silver contracts arenot subject to regulation under the U.S. Commodity Exchange Act. *Increasingleverage increases risk.CALL US877-FOREXGO(367.3946)LIVE CHATCONTACT US

AN INTRODUCTION TO TRADING CURRENCIES A FOREX.com educational guide The ins and outs of trading currencies HK HK kr FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Spot Gold and

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