A look at forex trading basics

Forex trading introduction

If you want to trade in the Foreign Exchange you have to submit to some sort of Forex Training. If you try to learn to trade on your own, you will Lose much more than you can Win. That statistics say 95% lose most of their investment in the first six months.

So what are your options? The following are a good list but by no means the only way to go about getting an education in Forex Training. There are of course no end to the types of training you can get, i.e. Seminars, E-Books, Videos, and Books. Most of it is available Online or in Person. There are Paid for Signals, and/or Chat Rooms. You can buy DVDs and Audio courses. There is Hourly, Daily, Weekly, even Monthly Newsletters. There is an unlimited amount of Websites that say they will teach you about trading Forex.

Add to that the plethora of Gurus and Mentors and you have almost too wide a variety of choices. How do you choose? First, most of all of those options will produce the exact same thing. You will learn all the basics from Trend identification, Fibonacci, and Oscillators to all of the indicators that are supposed to be the definitive answer on how to trade. No matter which course, seminar, e-book, video, signal service, or mentor you get the information from, they will all just be a variation of some other system.

Since the exchange rates change by such a small percentage, a term called the pip is used to describe changes in rates or profits. For example, if the GBP/CHF (British Pound versus Swiss Franc) goes from 1.7000 to 1.7001, it has increased by 1 pip, and an increase to 1.7100 would be 100 pips because for this pair one pip is 0.0001. However, for a rate like 95.00 for the USD/JPY, the pip represents 0.01, so 95.01 would be a 1-pip gain while 96.00 would be a 100-pip gain. This just describes the rate differences. To calculate your dollar gains, you need to factor in the lot size

Forex brokers make their profits not by charging a commission on each trade but by creating a small difference between the Bid (Sell) and Ask (Buy) prices. This is called the Spread and it is measured in pips. A typical spread might be between 1 and 10 pips. So if you bought and then sold right away, you would actually lose money by the amount of the spread. For example, buying EUR/USD at 1.5000 (the Ask) and selling at 1.4995 (the Bid) would be a loss of 5 pips.

Since currency rates change by such small amounts at a time, most forex brokers offer a large amount of leverage, such as 200 to 1. That means you only use $1 of your actual cash for every $200 of a forex pair that you purchase. For example, if you buy 10K of EUR/USD at 200:1 leverage, that would only require $50 of cash because 10,000 divided by 200 is 50. The purpose of the leverage is to amplify your profits but keep in mind it can just as easily amplify your losses. Many, many traders have lost all of their trading money because of leverage, so be careful!