Forex is short for Foreign Exchange and refers to the buying and selling of foreign currencies. Trading Forex is an exciting way to participate in and profit from the constantly moving global currency markets.
Each time you trade forex you are simultaneously buying a currency and selling another one. Because of this, they are always quoted in pairs, for example; EUR/USD or EUR/GBP. The first currency in the pair is known as the base currency, and the second is the quote currency. The price quoted represents how much of the quote currency you can buy with one unit of the base currency. For example, if the currency pair GBP/USD was quoted at 1.5500, then you can buy 1 British Pound for 1.5500 US Dollars.
When trading forex, you will always be quoted two prices for the currency pair. The first price is known as the Bid price, and the second price is known as the Ask, or Offer price. The Bid price represents the price given if you want to Sell the pair, and the Ask price represents the price quoted if you want to Buy the pair. For example, for EUR/USD you may be quoted a Bid price of 1.5500 and an Ask price of 1.5502. The difference between the two is known as the spread.
What are pips?
Forex Pips are the smallest units of possible change in a given currency pair. When a pair trades one pip differently, it is a .0001 difference. However currency pairs with Japanese yen as the second unit will be .01. A pip is the smallest unit of movement. The formula for calculating a pip's value is the pip's decimal place times the amount of units you've bought. For example, if you've purchased $100,000 units of the EUR/USD pair, you've bought 100,000 Euros using US dollars to buy them. This currency pair is calculated at four digits after the decimal point, so each pip equals .0001. At $100,000, every pip is worth $10. If you have purchases a currency pair with Japanese yen as the second unit, the pip's decimal place will be .01.
What is Leverage?
Forex Bulls offers leverage of up to 1:400. This means that with just a small amount of capital traders can take much larger positions in the market. For example, with just $1000, a trader could buy $200,000 of contracts, meaning much bigger potential for profit is possible.
The eight 'major' currencies traded on the forex market are:
Forex charts can have a lot of different looks depending on your interface, but there are some common parts in all forex charts. Most charts show the following prices:
In Forex charts you can look at everything from the past 10 years all the way down to the most recent minute. Most traders focus on charted times between the past day and the past hour, but with time, you'll develop your own unique preferences. It is important to understand that the more time periods you look at, the more clearly you'll understand how long a given trend has been going on.
The volume of trades can help you identify whether a trend is likely to continue for a while or if it's beginning to lose steam. When trading volume is high and a trend is apparent, the same pattern will probably keep going for a while. However, if trading volume is decreasing the trend might be about to run out or reverse itself.
Opening a position
In Forex you can open a position by either buying or selling a currency and you have several different ways to open a position. While every online trading site has its own unique interface, the methods of opening a position are similar wherever you decide to trade. The first thing you'll need to open a position on the FX market is a trading account with funds to trade with.
The following is a list of all the basic types of orders you can issue:
Stop Losses & Take Profit Orders
Stop Loss and Take Profit orders are two of the most useful tools to trade the Forex market. They help you maximize your profits and minimize your losses. For more information on Stop losses and take profit orders, visit our "Stop losses & take profit orders" page.