WHAT YOU MUST KNOW TO GET STARTED IN MARKET FOREX

WHAT YOU  MUST KNOW TO GET STARTED

The FOREX (i.e., FOReign EXchange) market is an international market where the money (currency) of every country is sold and bought freely. It was launched in the 1970s at the moment of introduction of free exchange rates, and the price of one currency against another that occurs from supply and demand is determined only by market participants.

There  is  no  external  control,  and  competition  is  free  because  all  the participants can decide to transact or not. In this respect, the FOREX is a perfect market because it can’t be controlled or monopolized by any of its participants. The enormous number of transactions executed day after day in  a  continuous  activity  make  it  the  biggest  liquid  financial  market.

According to various assessments, money masses in the market constitute up to US $4.5 trillion a day.

This market has seen recent turnover as high as US $6 trillion in a day,and the average most recently has been hovering at around US $3 trillion a day. The exact figure can’t be determined because the transactions are not centralized on a single exchange.

Trading is conducted all over the world through telecommunications and electronic networks 24 hours a day, 5 days a week starting from 00:00 Greenwich Mean Time (GMT) on Monday (some starting a little earlier) to 10:00 p.m. GMT on Friday (some closing a little later). There are deal-ers  quoting  currencies  in  every  time  zone  through  the  main  central 

markets:  Frankfurt,  London,  New  York,  Tokyo,  Hong  Kong,  Australia,New Zealand, etc.

To get a better understanding of FOREX quotes, you just have to know that one unit of the base currency is equivalent to the exchange rate in the quote currency. For example, if EUR/USD is trading at 1.2762, the price of1 euro (base currency) in dollars (quote currency) will be 1.2762 dollars.FOREX trading is conducted through individual contracts. The standard contract size (also called a lot) is usually 100,000 units. This means that for every standard contract you acquire, you are controlling 100,000 units of the base currency. For this contract size, each pip(the smallest price increment)is worth $10. Many companies offer mini accounts in which you can trade units of 10,000, where the pip value is $1 or even smaller.

In comparison with other markets, trading the FOREX market allows very low margin requirements because of leverage. In FOREX, you don’t need to obligatorily buy a currency first in order to sell it later. It is possi-ble to open positions for buying and selling any currency without actually having  it  at  hand:  For  a  standard  account  size,  usually  Internet  brokers

establish a minimum deposit such as $2000 for trading in the FOREX mar-ket and grant a leverage of 1:100. That is, opening the position at $100,000,a trader invests $1000 and receives $99,000 as a credit.For those wishing to get started at a smaller investment size, many bro-kers offer a mini account. The FOREX mini account offers smaller contract

sizes controlling $10,000 units. The usual account minimum to start a mini

account is about $250.

With a mini account, you only need $50 as a margin deposit require- ment per every $10,000 lot traded. The leverage is usually 200:1 (10,000 50200), and in some cases it can rise to 400 or 500:1 (you then would need even less margin to operate). Thus, with $250, you could trade a max-imum of 5 minilots; with $500, a maximum of 10; with $1000, a maximum of 20; etc. This leverage is 50 times greater than for stocks (stock day trading pro-vides a 4:1 intraday leverage for traders who have $25,000 or more in an account by U.S. law). Using a high degree of leverage is not always appro-priate because it can be very risky, but it provides the trader with a higher degree of flexibility for the execution of different trading strategies.

Even further, now some brokers are offering a micro account. I person-ally would not recommend these because the leverage is really high, but a micro account may be a good way to get your feet wet, so to speak, by trad-ing real money before moving on to a more standard size account. Micro accounts require as little as $25 to open and be able to control $1000 units.

The pip values, on average, are about $0.10 (10 cents).

To know more You can always go to   Currency Futures Tradimg BasicsHow do forex futures trading prices relate to those in the cash forex market?  

The FOREX is able to maintain its objectivity and avoid being con-

trolled or manipulated by one or few of its participants because the volume

transacted is so high that if any of them would want to do so, by changing

prices at will, they would have to operate with tens of billions of dollars.

This is the reason why the FOREX can’t be influenced by any single par-

ticipant, and even though there are situations where a huge transaction can

seem to take control of the market for a few moments, the balance is estab-

lished again almost immediately because of the great liquidity involved.

This also allows traders to get a profit by opening and closing positions

within a few seconds.

The  FOREX  market  is  always  moving. You can chose to maintain  a position  for  a  very  short  time  or  for  longer  periods,  even  years;  it  will depend only on your own trading strategies.

To know more You can always go to  A.6.1. When to enter a trade 

B. 6.2. When to exit a trade

In the FOREX, it is possible to perform speculative activities without

the need for a real money supply. This is referred to as marginal trading.

The amount required as a guarantee for the transaction is low, thus provid-ing an opportunity to open positions with a small account in U.S. dollars(some  local  brokers  also  accept  some  of  the  main  currencies,  such  as  the euro, pound sterling, Japanese yen, etc.) and buy or sell a lot of other different currencies.

Transactions can be conducted very quickly and yield a profit while the exchange  rates  go  up  or  down.  Marginal  trading  implies  operating  with borrowed capital, where you need only a small percentage of the total sum of the transaction.

For example, you have analyzed the situation in the market and have come to the conclusion that the euro will go up against the dollar. You open1 lot for buying the euro (EUR) with a margin of 1 percent (1:100 leverage) at the price of 1.2750 dollars per euro (the margin needed will be $1275) and wait for the exchange rate to go up. Sometime later, you see that your analysis was right. You close the position at 1.2827 and earn 77 pips ($770). Most currencies have a daily range of fluctuation of about 100 to 150pips on average, some even more. This gives FOREX traders the opportu-nity to make money on these changes.

There  are  several  tools  that  allow  the  trader  to  be  able  to  understand

and make decisions on the market, grouped basically under fundamental or technical analysis.

There is a constant exchange of political and economic information going on, and it is important to be informed on this because this will have an impact on the overall behavior of the market and will show market reaction as price changes. This is called fundamental analysis,an overview on all this information and how it affects a particular country and currency  value.  Fundamental  analysis  takes  account  of  rumors,  political events, and the local and international economy, such as, for example, the rates of inflation and unemployment, taxes, and interest rates. The political stability  of  a  particular  country  and  unexpected  events  also  have  great influence on the fluctuations of that country’s currency.

Sometimes,  especially  in  the  case  of  economic  forecasts,  this  infor-mation can become a self-fulfilling prophecy in that a certain outcome is expected, so the market reacts before the fact,thus starting a movement in prices that can be seen as an early move, and if the forecast is confirmed, the prices suddenly can start going in the opposite direction from the real

move  because  the  predicted  result  has  already  occurred,  and  traders  are

now closing their positions. This can lead to market reactions that seem

completely opposite to what the economic releases are implying for the

currency, although there are also many details that could be modifying the

outcome  because  all  the  currencies  are  moving  in  unison,  and  their

respective  interaction  will  affect  all  the  others.  Thus  the  fundamental

details sometimes can be too big to grasp completely. Only the big banks

and financial institutions, which employ professional economic analysts,

can  have  access  to  a  more  precise  and  wide  array  of  information  with

timely accuracy.

Technical analysis affirms, on the contrary, that all this information is

already priced in and that the resulting reactions are visible on charts. It is

based  essentially  on  prices,  time,  and  volume:  What  are  the  lowest  and

highest prices that a currency has reached in how much time or during what

period, and how many transactions were performed?

Technical analysis also assumes the repetitiveness of the market, which

it  most  probably  will  perform  again  in  the  future  as  it  has  already  per-

formed in the past. It analyzes past quotes and predicts the prices to come

based on statistical and mathematical calculations.Both  technical  and  fundamental  analyses  complement  each  other. A professional trader should consider both sides at any moment because some of the elements of each type of analysis will be present in the other.

For example,  a  fundamental  trader  will  have  to  consider  resistance  and supports, and a technical trader must be aware of the news that will have an impact on price changes.

 the source by :  JAMES DICKS