So what is currency trading? Forex is the bureau de change that you can buy and sell. For example, you can buy pounds sterling (exchanging them for the dollars you had) and then when the ratio of pounds to dollars goes up, you sell pounds and buy dollars again. At the end of this operation you will have more money than you had at the beginning.
The Forex market has a lot more liquidity than the stock market because a lot more money is traded. Forex is spread among banks all over the world and therefore it means 24 hour trading.
Unlike stocks, Forex trading is done with high leverage, usually 100. This means that by investing $ 1000 you can control $ 100,000 and increase the potential earnings accordingly. Some brokers also offer what is called mini Forex Trading, where the minimum deposit size is equal to $ 100. This makes it easy for people to enter this market.
The naming convention. In Forex, the name of a “symbol” consists of two parts: one for the first currency and one for the second currency. For example, the symbol USD/jpy represents the United States dollar (USD) in Japanese yen (jpy).
As with stocks, you can apply technical analysis tools to Forex trading charts. Traders’ indices can be optimized for Forex “symbols”, allowing you to find a winning strategy.
Example of Forex trading transaction
Suppose you have a $ 25,000 online Forex trading account and you trade with a 1% margin requirement. The current EUR / USD price is 1.3225 / 28 and you place a market order to buy 1 lot of 100,000 euros at 1.3228, waiting for the euro to rise against the dollar. At the same time, you place a stop loss order at 1.3178 which represents a maximum loss of 2% of your account capital if the trade goes against you, 50 pips below your order price and a limit order at 1,3378, 150 pips above your order. the price. For this trade, you risk 50 pips to earn 150 pips, which gives you a risk / reward ratio of 1 part risk for 3 parts reward. This means that you only need a third of the time to be right to stay profitable.
The notional value of this transaction is $ 132,280 (100,000 1.3228). Your required margin deposit is 1% of the total, which equals $ 1322.80 (1322.80 0.01).
As expected, the euro is strengthening against the dollar and its limit order is reached at 1.3378. The post is closed. Your total profit for this trade is $ 1500, each pip is worth $ 10.