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Foreign
Exchange Trading Made Easy by
John Eather
Definition- Foreign
exchange
trading also known as FX or Forex, is defined as the trading of one
currency in exchange for another. The foreign exchange market is the
biggest, most lucrative and liquid market on earth, trading 24 hours a
day, 7 days per week. Up to US$1.5 trillion dollars worth of trades are
conducted everyday. Central Banks, Corporations, Individuals and
speculators form part of the forex participant base. 5 % of daily
volumes consist of Government and commercial currency conversions, the
other 95% is made up of speculation and trading.
Advantages- Foreign
exchange trading has major advantages including high liquidity, all day
and all night trading due to overlapping trading session, traders are
given the chance to react to market, economical and political events as
they occur, low transaction costs and trade on margin opportunities.
Risk- The
risk involved with forex trading is just as high as the possible
reward. However it's very important to understand that you stand the
chance of losing not only any profits made but also your total initial
investment. If you are gambling on the market with money you don't
actually have or you are not willing to lose, rather avoid it. Should
you feel uncertain about this trade type, follow your gut feeling and
rather steer clear from trading. Invest in trade courses or books on
the subject to assist you with understanding the mechanics of the
market before serious trading is attempted
Rollover and spot
markets- Forex deals are
normally conducted on the spot basis,
meaning that deals are done at on the spot rates and settled within two
working days. However some positions remain open and are rolled over,
expiring only on next settlement day. The rate is then referred to as
next rate.
Quoting- Quoting
refers to the bid and asking price for the currency pair. The bid price
is usually on left hand side and asking price on the right hand when
indicated.
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