Profits are made by using margin trading, where a relatively small deposit is required to control much larger positions in the market. 1 percent margin deposit is required by a recommended broker. Therefore, $100,000 of trade currency is controlled by $1000.

Currencies are traded in dollar amounts called lots. One lot is equal to $1000, which controls $100,000 in currency. This is margin. A margin call can occur when your trading account drops below this minimum $1000 per lot traded.

Currencies are traded on a price interest point (pip) system. Each currency pair has its own pip value. The goal of a trader is to capture as many profitable pips as possible. Values are determined by mathematical formulas and according to the exchange rate of the particular pair. Some pip values are fixed, whereas others can fluctuate slightly as one currency gains or loses strength against the other.

Below is a list of the six major currency pairs with their approximate price and pip values. The currency listed first in the pair is called the base currency. The current price of a currency is called the spot rate. (The fluctuating rates are subject to change over time.)

Reference:
Page 23-24 (Forex Made Easy – 6 Ways to Trade Forex)

The rule of supply and demand determines the currencies’ values. To make speculation, one should be sound on analytical principles of forex market.  Forecasting of forex market is made through two most common methods:

1. Fundamental Analysis
2. Technical Analysis

The fundamental analysis is based on the past events that are believed to have caused market movement in the past.

The technical analysis is based on the judgment made on the patterns and behavior of price data and indicators as displayed on forex charts.

There are various methods to trade the FOREX, such as charts and graphs and next-generation software also known as Forex Robots. The important thing to note about this is that because the computer does the calculations for you, it does it the same way every time, with no deviations and no emotions. To be successful at trading, you must be able to duplicate success every time-trade the same way each and every trade.

Together with good money management, you only need to be right 50 percent of the time to make money. As long as your wins are greater than your losses, you can be a profitable trader. Good money management willbridge the gap.

7 Benefits of Forex Trading

There are many benefits in trading the foreign exchange market (the FOREX). A few of them are:

1. It has continuous liquidity.
2. It has very low dealing costs; 4 to 5 price interest point spreads.
3. It has 100:1 leverage for margin trading.
4. It has a very volatile, trending market.
5. It has a two-way market; that is, traders participate in bull or bear markets.
6. It is open 24 hours a day from Sunday night to Friday afternoon.
7. There are no separate commissions.

Forex Trading

Forex is an acronym of Foreign Exchange. Forex trading is a trade of currencies from different countries against each other. For e.g. the circulated currency is Euro (EUR) and in US Dollar (USD) in that of United States. An e.g. of a forex trade is simultaneous purchase of Euro and selling of US Dollar.

Forex Trading

How does Forex Trading Work?

Typically, forex trading is done through a Forex Broker or Market Maker. A forex trader can choose a currency pair which is expected to be changed in value. It is better explained with a following example:

“If you had bought 800 Euros in January 2009 costing you $1000 USD. Throughout the year, the Euro’s Value vs. the U.S. Dollar’s value increased. At the end of the year 800 Euros was worth $1100 USD. Had you chosen to finish your trade at that point, you would have a gain of $100 USD.”

Forex trading gained much popularity after the arrival of internet Era. There are online Forex Brokers which lets you place order with just a few clicks of your mouse. The brokers then passes the order along to partner in the Interbank Market to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.