Forex Trading Basics

Forex market has the unique feature of open on all 24 hours a day through online FX trading. It is the most attractive liquid financial market with thousands and thousands of enthusiastic people across the globe participating in it. To understand the Forex market it is very essential to know the currency trading basics very clearly.

Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For example, for trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.

In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 1%, in the underlying value of your trade will result in a 100% profit or loss on your deposit.

In Forex market currencies are transacted in pairs such as GBP/USD or EUR/USD. In the trade selling of one currency and buying of the other currency happens simultaneously. The currency, which is the basis for the trade, is known as base currency and the other one is counter currency. Typically in EUR/USD, EUR is the base currency and USD is the counter or terms currency. The important currency trading basics include how to read the quotes. For example, EUR/USD quote 1.3242 means that one EURO equal to 1.3242 USD.

Two important terms in FX trade are BID and ASK Prices. As the terms indicate 'bid' is the price at which you can buy the counter currency by selling the base currency. Similarly 'ask' is the price at which you can sell the counter currency through buying the base currency. Spread is a commonly used word in the currency trading basics. It means the difference between the 'bid' and 'ask' prices. Many Forex brokers are out there in the market offering commission free trading with spreads. Understanding the language and basics in the Forex trade is very much essential for successful business in the FX currency market.
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