Currency Trading

The Foreign Exchange market is also referred to as the Forex market, "Cash" Currency Market and Spot Market and is the largest financial market in the world, with a daily average turnover of well over US$3 trillion dollars-- 30 times larger than the combined volume of all U.S. equity markets. For purposes of this educational piece all references to forex will be referred to as “currency trading”.

Currency trading is the simultaneous buying of one currency and selling of another. Currency trading is traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).

There are two reasons to buy and sell, about 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits into their domestic currency. The other 95% is trading for profit, or speculation in the currency trading market.

For speculators, the best currency trading market trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

The forex market is a 24 hour market and begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial currency trading market, investors can respond to the fluctuations caused by economic, social and political events at the time they occur - day or night.

The Cash market is considered an Over The Counter (OTC), or ‘interbank’ due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Forex trading is not centralized on an exchange like the stock and futures markets.

Currency Trading Market Quotes

Reading a quote may seem a bit confusing at first. However, it is really quite simple if you remember two things:

1) The first currency listed is the base currency and

2) the value of the base currency trading market currency is always 1.

The US dollar is the centerpiece of the forex market and is normally considered the 'base' currency for quotes. In the "Majors", this includes USD/JPY, USD/CHF and USD/CAD. For these and many others, quotes are expressed as a unit of $1 USD per the second currency trading market currency quoted in the pair. For example, a quote of USD/JPY 120.01 means that one U.S. dollar is equal to 120.01 Japanese yen in the currency trading market.

When the U.S. dollar is the base unit and a currency trading market currency quote goes up, it means the U.S. dollar has appreciated in value and the other currency trading market currency has weakened. If the USD/JPY quote we previously mentioned increases to 123.01, the dollar is stronger because it will now buy more yen than before. The three currency trading market exceptions to this rule are the currency trading market British pound (GBP), the currency trading market Australian dollar (AUD) and the currency trading market Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.4366, meaning that one British pound equals 1.4366 currency trading market U.S. dollars. In these three currency trading market currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one currency trading market pound, currency trading market euro or Australian currency trading market dollar.

In other words, if a currency trading market currency quote goes higher, that increases the value of the base currency. A lower currency trading market quote means the base currency trading market currency is weakening.

Currency trading market pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same. For example, a quote of EUR/JPY 127.95 signifies that one currency trading market Euro is equal to 127.95 currency trading market Japanese yen.

Currency Trading Spreads not Currency Trading Commissions

When trading the currency trading market, you are always quoted a 2-sided dealing price where you can buy or sell the currency trading market currency. The difference between the currency trading market buy and currency trading market sell price is the spread.

Currency Trading Market bid and Currency Trading Market Ask Prices

When trading the currency trading market you will often see a two-sided quote, consisting of a currency trading market 'bid' and currency trading market 'ask'. The ' currency trading market bid' is the price at which you can sell the base currency trading market currency (at the same time buying the counter currency trading market currency). The currency trading market 'ask' is the price at which you can buy the base currency trading market currency (at the same time selling the counter currency trading market currency).

Currency Trading Factors Affecting The Market

Currency trading prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Governments sometimes participate in the currency trading market to influence the value of their currency trading market currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large currency trading market orders, can cause volatility in currency trading market currency prices. However, the size and volume of the currency trading market makes it impossible for any one entity to "drive" the currency trading market for any length of time.

Currency Trading Fundamental Vs. Currency Trading Technical Analysis

currency trading Market currency traders make decisions using both technical factors and economic currency trading market fundamentals. Technical currency trading market traders use charts, currency trading market trend lines, currency trading market support and currency trading market resistance levels, and numerous patterns and currency trading market mathematical analysis to identify currency trading market trading opportunities. currency trading market fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor.

The most dramatic currency trading market price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic currency trading market interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectations surrounding an event that drives the currency trading market rather than the event itself.

What Every Currency Trading Trader Should Know

The currency trading market is one of the most popular markets for speculation due to its enormous size, currency trading market liquidity, and tendency for currency trading market currencies to move in strong trends. An enticing aspect of trading currency trading market currencies is the high degree of leverage available. Currency Trading Edge allows positions to be leveraged up to 100:1. Without proper currency trading market risk management, this high degree of currency trading market leverage can lead to enormous swings between profit and loss. Knowing that even seasoned currency trading market traders suffer losses, speculation in the currency trading market should only be conducted with risk capital funds that if lost will not significantly affect one's personal financial well being.

Currency Trading Rollover

What happens to my Currency trading open positions at the end of the trading day?

Unless specific settlement instructions are provided, Currency Trading Edge will automatically roll forward all open positions to the next day's value date at the end of each business day, 5:00 pm EST. All rolls will be done at competitive currency trading rollover rates, and depending on the currency trading market currency pairs involved, currency trading market trades will be executed where the trader will either earn or pay interest, depending on the interest rate differential between the two currency trading market currencies. If you do not want to earn or pay interest on your positions, simply make sure it is closed at 5pm EST, the established end of the market day.

Calculating Profit and Loss in the Currency Trading Market

For ease of use, our online currency trading market trading platform automatically calculates the profit and loss of your open currency trading market positions. However, it is useful to understand how this calculation is derived.

To illustrate a typical currency trading market trade, consider the following example.

The current bid/ask price for EUR/USD is 1.2320/23, meaning you can buy 1 currency trading Market euro with 1.2323 US dollars or sell 1 currency trading Market euro for 1.2320 US dollars.

Suppose you decide that the currency trading Market Euro is undervalued against the US dollar. To execute this strategy, you would buy currency trading Market Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.

So you make the trade: to buy 100,000 euros you pay 123,230 dollars (100,000 x 1.2323). Remember, at 1% margin, your initial margin deposit would be $1,232 for this trading the currency trading market.

As you expected, currency trading Market Euro strengthens to 1.2395/98. Now, to realize your profits, you sell 100,000 euros at the current rate of 1.2395, and receive $123,950.

You bought 100 k currency trading Euros at 1.2323, paying $123,230. You sold 100k Euros at 1.2395, receiving $123,950. That’s a difference of 72 pips, or in dollar terms ($123,950 - $123,230 = $720).

Total profit = US $720

(TIP: When trading currency trading Market EUR/USD or any Euro cross e.g. currency trading Market EUR/JPY, each pip is worth $10, per 100,000 trades in currency trading market ).

Understanding the Currency Trading Margin

The currency trading market margin deposit is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value. Currency Trading Edge online currency trading market trading platform has margin management capabilities in the currency trading market, which allow for this high currency trading market leverage.

In the event that currency trading market funds in the account fall below currency trading market margin requirements, the currency trading market Dealing Desk will close all open positions. This prevents clients' currency trading market accounts from falling into a negative balance, even in a highly volatile, fast moving currency trading market.

Trading currency trading market currencies on margin lets you increase your currency trading market buying power. Here's a simplified example: If you have $2,000 cash in a currency trading margin account that allows 100:1 leverage, you could purchase up to $200,000 worth of currency trading market currency-because you only have to post 1% of the purchase price as collateral. Another way of saying this is that you have $200,000 in buying powering the currency trading market.

With more buying power in the currency trading market, you can increase your total return on investment with less cash outlay. To be sure, currency trading market trading on margin magnifies your profits AND your losses.

Here's a hypothetical example that demonstrates the upside of currency trading market trading on margin:

With a US$5,000 balance in your currency trading market margin account, you decide that the US Dollar (USD) is undervalued against the currency trading market Swiss Franc (CHF).

To execute this strategy, you must buy Dollars (simultaneously selling currency trading market Francs), and then wait for the exchange rate to rise.

The current bid/ask price for USD/CHF is 1.2322/1.2327 (meaning you can buy $1 US for 1.2327 Swiss Francs or sell $1 US for 1.2322 francs)

Your available leverage is 100:1 or 1%. You execute the currency trading market trade, buying a one lot: buying 100,000 US dollars and selling 123,270 currency trading market Swiss Francs.

At 100:1 leverage, your initial currency trading market margin deposit for this trade is $1,000. Your currency trading market account balance is now $4000.

As you expected, USD/CHF currency trading market rises to 1.2415/20. You can now sell $1 US for 1.2415 currency trading market Francs or buy $1 US for 1.2420 Francs. Since you're long dollars (and are short currency trading market francs), you must now sell dollars and buy back the francs to realize any profit.

You close out the position, selling one lot (selling 100,000 US dollars and receiving 124,150 CHF) Since you originally sold (paid) 123,270 CHF, your profit is 880 CHF.

To calculate your P&L in terms of US dollars, simply divide 880 by the current USD/CHF rate of 1.2415. Your profit on this trade is $708.82

Currency Trading Market Summary

Initial Investment in currency trading market	$1,000
Profit in currency trading market	$708.82
Return on Investment currency trading market	70.8%

If you had executed this currency trading market trade without using leverage, your return on investment would be less than 1%.

Managing an Currency Trading Market Margin Account

Currency trading on margin can be a profitable investment strategy, but it's important that you take the time to understand the risks.

You should make sure you fully understand how your currency trading margin account works. Be sure to read the margin agreement and talk to your account representative if you have any questions.
The positions in your currency trading market account could be partially or totally liquidated should the available margin in your account fall below a predetermined threshold.
You may not receive a margin call before your positions are liquidated.

You should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk currency trading. In fact, most currency trading market traders place a stop-loss order at the same time of the entry order to limit the currency trading market risk.