Forex - Basics

Whether you plan to trade on the foreign exchange market (Forex) or in the stock market you will need to have some knowledge on two basic forms of analysis: fundamental analysis and technical analysis. It is the tendency for the price of a currency to reflect the impact of a specific action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. Certain reports will give an indication of whether a nation’s economy has improved or declined. Trade flows are an important cause in the long-term direction of a currency's exchange rate. The Foreign exchange can be broken up into three major trading sessions: the Tokyo session, the London session, and the US session.

Forex trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. GFD ( Good for the day) currency trading is risky but not any riskier than other investment trading (such as the stock marketplace).

It’s not the fact that you are trading currencies but how you manage the risk of the currency trading marketplace. Reports can be used to see if a country is making or losing money on its products and services when it is compared to a nation’s exports. The duration of the trade can be a few days, months or years. Whether you plan to trade on the foreign exchange market (Forex) or in the stock market you will need to have some knowledge on two basic forms of analysis: fundamental analysis and technical analysis.

A Foreign exchange broker does not charge a commission for placing a buy or a sell order the way a real estate broker would charge a percentage fee of the total price of a sale. Different dealers offer very different deals to their customers. A broker is any person or firm that charges a fee in exchange for executing trades for a trader. A Forex broker is paid according to the spread or the difference between the traders bid for a currency, and the sellers asking price for that currency.

The Forex market is open 24 hours a day; however it isn’t always active during those 24 hours. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends. The London session is usually busier than the Tokyo or US sessions. There are usually two markets open at the same time.

A margined account is a leverageable account in which Foreign exchange can be purchased for a combination of cash or collateral depending what your brokers will accept. For instance, for every $1,000 you have, you can trade 1 lot of $100,000. Think of your broker as a bank who basically fronts you $100,000 to buy currencies and all he wants from you is $1,000 as a good faith deposit, which he will hold for you but not necessarily keep. This means that for every $100,000 traded, the broker requires $1,000 as a deposit on the position.

There is the potential for profit in the currencies marketplace regardless of which way the market moves. In simplest terms, this means the foreign currencies bought and sold in the forex marketplace are traded directly between banks, foreign currency dealers and forex investors wishing either to diversify, speculate or to hedge foreign currency risk. Interest rate news has a direct impact on the international financial markets. The levels of access that make up the foreign exchange market are determined by the size of the “line” (the amount of money with which they are trading).

Reports released by the government that detail a country’s economic performance are economic indicators. The retail sales report measures the total receipts of all retail stores in a given country. You are probably wondering how a small investor like yourself can trade such large-scale amounts of money. The foreign exchange market is not a "marketplace" in the traditional sense due to the fact that there is no centralized bank for fx trading activity and, therefore, trades placed in the forex market are considered over-the-counter (OTC).

When a country raises its interest rate, that country’s currency strengthens relative to other currencies. The average daily trade in the global forex and related markets currently is over US$ 3 trillion. A marketplace order is an order to buy or sell at the current marketplace price.