How To Trade Forex

Jan 26 09:25 2010 Paul Hamilton Print This Article

One of the most fundamental concept of understanding toward how to trade Forex is the fact that all Forex transactions involve the buying and selling of two currencies simultaneously.

Normal 0 false false false MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} The ultimate aim of this is to secure a positive price differential once the whole transaction process is completed twice over.  To go about this,Guest Posting the trader must first of all decide if he wishes to maintain a “Long” or “Short” market position for his transaction.


When a trader decides to hold a “long” position, he is in essence buying a currency pair with the intention of selling it at a higher price later. Conversely, when a trader maintains a “Short” market position, he is selling a currency pair with the hope of buying the same currency pair at a latter date with a lower price. However, the fact is, in every Forex transaction, a trader will always be holding a long position with one currency and a short position in another currency. Nevertheless, in order to avoid confusion, all Forex transactions are referred to by its “Base” currency. Hence, when you buy the base currency, you will be regarded as holding a long position. A short position is when you sell the base currency.


Therefore when a trader purchases the US dollar, he will also be selling the Japanese yen at the same time. The base currency in the above example will be the US dollar. This would mean that the trader is holding a long position for the above currency pair. As such, to secure a profit, the trader has to wait until the red line shifted upwards before he can sell the US dollar against the Japanese Yen. 


There are several kinds of account that a trader can trade with. He can open a “Mini” account or a “Full” account. The main difference between these two kinds of account is the size of the transaction. With a mini account, the “lot” size of the currency unit is 10,000 units of currency. For a full account however, the “lot” size is 100,000 units of currency. With the proper utilization of margin, a trader can leverage his transaction to acquire several lots of currency units at a single time. Thus, any small movement in the exchange rate will have an exponential effect on his profitability or losses.


The Forex market is an extremely exciting and lucrative market. But before anyone can seek to profit from their trading, they must try to understand all the terminologies used in this vibrant market. The reason for the existence of these terminologies is to avoid confusion while trading. Chaos will ensue if one traded in the wrong currency due to a miscommunication. Therefore, before anything else, all Forex trader must seek to educate themselves properly first before they start trading.     

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Paul Hamilton
Paul Hamilton

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