Beginners Currency Trading For Dummies
There are so many details that are important to know that an article this length cannot even begin to touch currency trading for dummies adequately. This is a broad brush stroke of some really basic information that will hopefully give you some ideas on further information that you need. Currency trading is most commonly known as Forex. Forex stands for Foreign Exchange Market. This market, unlike other stock markets, is open, active, and running twenty-four hours a day. The more that you can learn about Forex and the intricacies of trading, the more successful you will be.
Forex traders are betting on the way that exchange rates will move. This sounds easy, but exchange rates for countries are affected by multiple variables. The Forex trading arena is an even playing field, information is received by all traders at the same time. While everyone speculates on changes in the currency market, no one can know for sure when a market is going to rise or fall.
The factors that affect currency rates are occurring continuously throughout the world. Wars, arms, death of leaders, economy. All of these factors play a role in how currency is affected. Basically the currency of any country changes in response to events by the people or government of that country.
Predicting fluctuations in the rate and deciding which pairs will result in the biggest gains is the main goal of traders. "Pairs" are when one currency is traded against another country's currency. Major pairs that are traded all involve the US dollar. A "cross currency pair" is a pair that does not involve the US dollar. For instance the most active cross currency pairs are JPY, GBP, and EUR. An example of a cross currency pair is GBP/JPY (British pound/Japanese Yen).
The stronger currency shown on a pair is traditionally shown on the right list the listing. For instance when you see EUR/USD, you know that the Euro is stronger than the US dollar. This is called the "base currency." Buying and selling always starts with your base currency. So, if you sell 1000 EUR, you will be buying 1000 USD at the same time. This is why it's called pairs. Think of it as elementary Algebra. Whatever happens on the left, the opposite happens on the right at the same time.
USD, or the currency on the right is the "counter currency", or "secondary currency." When you buy and sell your base currency, your profit or loss will be in the denomination of your counter currency. So, let's say you are selling 1000 EUR/USD - When the value of the USD (500) is figured into your profits or losses, your P&L is -500 on that trade.
Now, multiply the previous paragraphs into thousands of trades happening every minute of every day and you get an idea of how fast the market moves. Forex is very, very fast. The currency rates are constantly on the move. Some of the pairs are lower risk and some are extremely high risk. Knowing what the risk of the pairs are will help you to decide where you can start actively trading.
As we said earlier, there is a lot to learn to be able to start trading successfully. There are numerous classes available on Forex trading and many blogs by successful traders that you will find helpful. When looking at tools to make trading more consistent, you will want to look at the historical gains and losses of the method you are looking at. Following a system or method to see how it actually acts when applied to the current market will also help you to select the system that will be most helpful for you.