The Foreign Exchange market which is often referred to as the "Forex" or "FX markets" is the largest, most liquid, most transparent financial market in the world. Daily average turnover has now exceeded 3.2 trillion USD. All the U.S. equity markets combined do not reach 3% of the total volume traded on the FX market.
Unlike other financial markets, where for the most part you can only profit in rising markets, in the FX market whenever one enters into a position he is long (bought) one currency and short (sold) another currency simultaneously which means as opposed to other cyclical financial markets in the FX markets there are endless opportunities.
Placing an order is as simple as that: choose the currency pair, the amount of the base currency you want to trade, and if you want to buy or sell, when trading with an online platform, just click and there you are.
But though it sounds very easy, the Forex market has its own rules, uses and usual practices.
In order to trade properly the following pages will provide you with important guidelines and tips.
What types of order you will have to place in specific market conditions.
Examples of a typical trading day (very simplified) in order to give you an idea of how it works.
But moreover, when taking a position on the market, your exposure has to be consistent with your feeling of the market sentiment, the trading time frame you defined and your financial capacities, that's what we call trading Forex with a strategy.
Currency Pairs
Each currency is recognized by a three letter code. For example EUR (is the EURO and refers to the European currency), USD (is the United States Dollar). The worlds leading currencies (often referred to as the majors) are the EUR, USD, JPY (Japanese Yen), GBP (the British Pound or Sterling), CHF (the Swiss franc), AUD (the Australian Dollar) and the CAD (the Canadian Dollar).Currencies are traded in pairs and are displayed as such. There is always the three letter currency code a slash and another three letter currency code. The first currency displayed refers to the "base", "leading" or "primary currency"; the second currency refers to the "secondary currency".
For instance when looking at the EUR/USD the EUR is the leading currency and the USD is the secondary currency. The "currency pair" or "currency cross" is then followed by a number; this is typically a five digit number with a decimal point after the first, for instance 1.5660.
The number represents the ratio of one currency against the other, and can be read as "the amount of the secondary currency needed in order to have one unit of the major currency". In the example just given, EUR/USD 1.5660, one would require 1 Dollar and 56.6 cents to exchange for 1 Euro.