What is Forex (Foreign Exchange)?

Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange (off-exchange). It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.

Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets

7:Overview

Forex, FX, or Foreign Exchange, is the simultaneous exchange of one country's currency for that of another. FOREXYARD offers leading online trading platforms for individuals that wish to speculate on the exchange rate between two currencies. In doing so, speculators purchase or sell one currency for another with the hope of making a profit when the value of the currencies changes in favor of the speculator as a result of events that takes place across the globe. This market of exchange has more daily volume - both buyers and sellers - than any other market in the world. The FX market is available 24-hours a day, five days a week. Furthermore, the Forex Market is the largest financial market in the world with daily reported volume of over $1.4 trillion changing hands between buyers and sellers across the globe, making it one of the most exciting markets for trading. Although currency trading is inherently governmental (central banks) and institutional (commercial and investment banks), technological innovations, like the internet, have made it easy for individuals to take part in the currency trading markets and to trade via intermediaries online.

6:How an FX Trade Works

In the FX market you can buy or sell one currency for another. When you buy a currency, you are said to be "long" in that currency and when you sell a currency, you are said to be "short" in that currency. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies in order to make profits - since the objective is to earn a profit from their position. Placing a trade in the foreign exchange market is simple and the mechanics of a trade are virtually identical to those found in other markets. Because of the symmetry of currency transactions, you are always simultaneously long in one currency and short in another. An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. To close out your position, you conduct an equal and opposite trade in the same currency pair. For example, if you have gone long in one lot of EUR/USD you can close out that position by subsequently going short in one EUR/USD lot (at the prevailing bid price).

5:Quoting Currency Pairs

Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the "basis" for the buy or the sell. For example, if you BUY EUR/USD you have bought Euros (simultaneously sold dollars). You would do so in expectation that the Euro will appreciate (go up) relative to the US dollar.
Currency AbbreviationsSymbol Definition Symbol Definition
EUR Euro NZD New Zealand Dollar
GBP Great British Pound AUD Australian Dollar
USD US Dollar CAD Canadian Dollar
CHF Swiss Franc JPY Japanese Yen


EUR/USD

In this example Euro is the base currency and thus the "basis" for the buy/sell. If you believe that the US economy will continue to weaken and this will hurt the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought Euros in the expectation that they will appreciate versus the US dollar. If you believe that the US economy is strong and the Euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold Euros in the expectation that they will depreciate versus the US dollar.
USD/JPY

In this example the US dollar is the base currency and thus the "basis" for the buy/sell. If you think that the Japanese government is going to weaken the yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will appreciate versus the Japanese yen. If you believe that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back to Japan, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USD

In this example the GBP is the base currency and thus the "basis" for the buy/sell. If you think the British economy will continue to be the leading economy among the G8 nations in terms of growth, thus buying the pound, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will appreciate versus the US dollar. If you believe the British are going to adopt the Euro and this will weaken pounds as they devalue their currency in anticipation of the merge, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHF

In this example the USD is the base currency and thus the "basis" for the buy/sell. If you think the US dollar is undervalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc. If you believe that due to instability in the Middle East and in U.S. financial markets the dollar will continue to weaken, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.

4:Buying / Selling

First, the traders should determine whether they want to buy or sell. If they want to enter a short order - whereby they will profit if the exchange rate falls - they simply need to click on the SELL rate. The opposite holds true for traders who enter buy orders: they can simply click on the BUY rate, and thus will profit if the exchange rate goes up.
Example of How Buying / Selling Works
As with all markets, there are two prices for every currency pair. The difference between these two prices is the spread, or the cost of the trade. In this example, the spread is three pips. On the 10k position, a pip on the EUR/USD currency pair is worth $1.

3:Margin / Leverage

FX accounts are margined: a trader can hold a market position much larger than the value of the trader's account value. The online trading platform which FOREXYARD offers has margin management capabilities, which allow lenient margin requirement of up to 1/2%. However, we do not recommend using leverage of more than 10 times your account value. Using leverage exaggerates both gains and losses. Even when market conditions are relatively calm, using leverage can generate large gains or losses. In the case where a trader surpasses the maximum leverage allowed (which can happen when account equity shrinks as a result of trading losses), the trading system will close all open positions in the account. This prevents client's accounts from falling into a negative balance, even in a highly volatile, fast moving market.
Example of How Margin Works

Since the trader opened 1 lot of 10k EUR/USD, his margin requirement or Used Margin is $50. Usable Margin is the funds available to open new positions or sustain trading losses. If the equity (the value of his account) falls below 20% of his Used Margin due to trading losses, his position will automatically be closed. As a result, the trader can never lose more than he/she deposits.

2:Rollover

In the spot forex market, trades must be settled in two business days. If a trader sells 100,000 Euros on Tuesday, the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to our traders, FOREXYARD automatically rolls over all open positions to the next settlement date at 5:00 pm New York time. Rollover involves exchanging the position being held for a position expiring the following settlement date. The positions being exchanged are usually not valued at the same price. The difference in amount varies greatly based on the currency pair, the interest rate differential between the two currencies, and fluctuates day to day with the movement of prices.

For positions open at 5.00 pm EST there is a daily rollover (interest payment) you pay for an open position depending on your established margin level and position in the market. If you do not want to earn or pay interest on your positions, simply make sure they are closed by 5.00 pm EST, the established end of the market day.

1:Getting Started

With no commitment or cost, you can open a Virtual Trading Account. The account has the full capabilities of a "real" account including live market rates, access to real-time market analysis, and the ability to execute trades off streaming prices. The virtual account (or Demo Account) gives you the ability to learn about the forex markets and test your trading skills without any risk.
How to Trade Your Demo

Use this time to make a plan and develop your strategies.
Choose the right currency pair. Find out based on your risk parameters, which currency is best suited for your trading style. Some may be too volatile and some too slow so decide which currency pair is most appropriate for your strategy and time frame.
Decide on how long you plan to stay in a trade. If you are an inter-day trader, what is the average time of your trade? - a few minutes, a couple of hours, a full day, or swing trade (couple of days to a week).
Before you enter a trade you should also have clear exit plan. Place your stops and limits accordingly.
Know how much you are willing to risk and how much you are looking to gain.
Keep track of important news and technical level

Why should any one do forextarde

Why should any one do forextarde

1. no rent of offices

(that is, NO dealing with Realtors, Lawyers, and government departments...man, what a pain in the ass). Also no office fit-out costs

2. no staff

(man, unless you have had large numbers of staff depending on YOU for their paypacket each week, you cannot know what a huge pain in the ass it is. They ALL want you to solve their problems)

3. No inventory or stock to buy

No shrinkage (theft of stock) and no "slow moving" items. No massive amount of funds tied up in inventory

4. You can "borrow" as much as you want

(by increasing your leverage), WHENEVER you want. (Try running a big business and going to the bank for a short term loan for $10 mill...it will take a month minimum). I am trading $10-12 mill all the time and I get it instantly through the brokers by the use of leverage.

5. If the business becomes a hassle

for whatever reason, you can shut it down (that is, close all positions) instantly...and re-open (initiate new positions) whenever YOU want to re-open your "business."

6. You can "scale" your business to whatever size YOU want

simply by increasing/decreasing your positions.

7. Absolutely minimal paperwork

Simply send your 12 month summary Profit and Loss Statement to your Financial Accountant for tax payment purposes.

8. You can trade from anywhere in the world

My wife and I travel most of the year. (take your laptop or PDA or whatever else they will come up with and trade while sipping a nice drink as close by as your local cafe or as far as some open air cafe in some remote little town in beautiful Italy while you watch a bocce match at the park.)

I could keep telling you more of the benefits of this business, but suffice to say...this is the best "business" in the world. I run a multi-multimillion dollar business from my laptop.

And did I mention that it was exciting and fun????

Forex

Forex is short for foreign exchange. When one speaks of a forex profit or loss, he is talking about the increased or decreased value of an investment caused solely by currency movements. For example, if an investor thought that the dollar was weak, he might purchase German money markets. The investor's account might earn 3% annualized, but the real profit or loss could be in how the DM (German mark) moves against the US$ (United States dollar). If the investor held the DM money market for an entire year, and if the DM rose 5% against the dollar, the investment would, in real returns, make not only the 3% annualized interest, but 5% on the principal and 5% of the 3% interest.

Example: Say the investor put US$10,000 in DM at 3%, with the 3% held to maturity. If the DM rose 5% against the dollar during the year, when the investor was paid at maturity and exchanged his DM back into US$, he would receive, in total, his $10,000 investment -- plus five percent of the $10,000 (the forex increase)-- plus three percent of the interest paid on $10,000 (stated money market interest rate) -- plus five percent of the three percent interest (the forex increase which would accrue even on the interest, because the interest would be paid in DM).

The investor would receive: $10,000 + .05 ($10,000) + .03 ($10,000) + .05 (.03) $10,000 = $10,815, or a profit of $815. This is a return of 8.15%. The investor would have made 3% at any rate, even if the mark had not changed against the dollar. That is, he would have made .03 ($10,000) = $300. Therefore his forex profit is $815-$300= $515, or 5.15%.

Forex Spread or Forex Cost

The difference between the buy price and sell price of exchanging one currency into another. For example, if you were converting U.S. dollars into Canadian dollars, the buy price might be 1.33 Canadian dollars per U.S. dollar. That means that it would cost you one dollar to buy 1.33 Canadian dollars. But the sell price might be 1.30 Canadian dollars per U.S. dollar. That means you would receive one U.S. dollar for every 1.30 Canadian dollars you exchanged. The difference between the buy and sell price (1.33 and 1.30 in this instance) is the forex price or forex spread of converting currencies. This cost is built into every transaction or investment that involves foreign exchange of currencies.

Currency Allocation.

This is the process of diversifying your investments into several currencies. Most currency allocation tactics first divide an investor's savings into local and foreign currencies. For example, a U.S. investor would divide his or her porfolio into a U.S. dollar portion and a non-U.S. dollar portion, with a determined percentage for each portion. In times of a rising dollar, one normally weights the protfolio more heavily in dollars. In times of a falling dollar, one weights the portfolio out of the dollar. The second part of Currency Allocation is the choosing of other currencies and foreign investments to hold.

Foreign exchange (FOREX)

Any type of financial instrument that is used to make payments between countries is considered foreign exchange. The list of instruments includes electronic transactions, paper currency, checks, and signed, written orders called bills of exchange.

Large-scale currency trading, with minimums of $1 million, is also considered foreign exchange and can be handled as spot price transactions, forward contract transactions, or swap contracts.

Spot transactions close at the market price within two days, and the others are set to close at an agreed-upon price and an agreed-upon date in the future.