Saturday, 28 January 2012

Beginner’s Overview of Foreign Currency Exchange

Out of country gar mulki currency tajrat kay zariya ak fida mund karobar business ha. Lakin ya ab b new any walon kay liya ho sakti ha. intimidating for a newcomer. Some basics are necessary in order to get started.

1. What is FOREX?
2. How to trade currencies?
3. Benefits of Forex trading?
4. Risks involved?
5. How to get started?

What is Forex?

The Foreign currency exchange forex market is the equivalent of the stock market in cash. Similar to the stock exchange, but at the same time with important differences: it does not have a location on a trading floor and is not centralized on an exchange, everything is electronic and it’s on 24 hours /day, from Sunday evening (5:00pm EST) to Friday evening (4:00 pm EST), except some holidays. FOREX is user accessible from home PCs and you can trade currencies when it best suits you.

How to trade currencies?
The Foreign currency exchange gets traded in couples or currency pairs (for example EUR/USD, where Euro is the base currency and USD is the counter or quote currency). The available major pairs are: EUR/USD, GBP/USD (Great Britain pound vs. US dollar), USD/JPY (US dollar vs. Japanese yen), USD/CAD (US dollar vs. Canadian dollar), AUD/USD (Australian dollar vs. US dollar), and USD/CHF (US dollar vs. Swiss Franc).
Foreign currencies are exchanged in lots (dollar set amounts) and for a standard account a standard lot equals $1000 and has control over $100.000. When a buyer gets a lot of EUR/USD, he buys Euro and at the same time sells the dollar. To place this type of order, the trader must set a margin, in this case of $1000. This move is in the hope that the Euro will strengthen against the dollar, and for every $0.0001 in the Euro, the gain equals one “pip” (price interest point), or exactly $10 for every lot.

Benefits of Forex trading?
1. When trading on FOREX, there are no employees or customers, no inventory, everything can be done from a home computer, so the costs for a business like this are minimal.
2. The start investment can be as small as $300, with a mini account, even smaller with micro-accounts.
3. Currency prices follow certain trends and these tend to grow stronger as they repeat in predictable cycles. It is relatively easy to make a profit, once the science of trading is learned.
4. The trading time can be minimal, it can be only a few hours per week if you like. Obviously, the schedule is made by the trader.

Risks involved?
1. On certain days, when major releases happen (fundamental announcements), the market tends to be highly volatile. Of course these announcements are known in advance and a high number of traders stay put and wait until the market is back to being stable.
2. It’s important never to risk more money that one can afford to lose. When risking too much on a trade, a lot of money can be lost on an exchange that doesn’t go the right way. A method to avoid this is never risking more than 2% of the account in one single trade.
3. Major world events, like wars, natural disasters or country defaults can erase a trader’s account and in general brokers take care of this by limiting the loss on an account. On the other hand, a major event could wipe out the trade, in which case there’s not much one can do.

How to get started?
It is easy to open an account by working with a FOREX broker. It is possible and recommended to open a free demo account for practice before opening the real thing. In “paper trading”, real data is used to simulate trades and it is recommended not to start with real accounts while not proficient in the demo account.

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