Forex Trading Advice
Buying and selling currencies is not the only thing that can be done in forex trading. You can use financial derivatives, such as futures and options, to speculate on price movements. If you forecast a price move correctly, you could make a profit.
Forex is an open market, and the volume of currency trades is huge, with billions of dollars exchanged each minute. This high volume creates high liquidity, making it possible to make trades quickly and easily. However, it also makes price movements for some currencies very volatile.
Forex brokers make their money by charging spreads. The spread is the difference between the ask price and the bid price. The ask price is the price to which a buyer is willing to pay, while the bid price is the price at which a seller is willing to sell. A difference of 10 cents is called a pip.
A currency pair is a pair of currencies that are often traded together. For example, if the dollar is the quote currency, and the euro is the base currency, the pair is referred to as the EURUSD.
A forex trader buys a currency, expecting it to rise in value, then sells it back to the market for a higher price. This is called a long position. A short position is when a trader sells a currency expecting it to fall in value.
In the forex market, a small amount of money is needed to open a trading account. Traders can use leverage, or borrowed money, to trade. Leverage can also lead to larger losses. In most cases, retail traders are limited to leverage ratios of 1:30 or 1:50.