Basics of Currency Trading

For the trader interested in making money in the foreign exchange markets of the world it is wise to start by learning the basics of currency trading. The basics of currency trading start with the fact that trading foreign exchange used to be exclusively the province of central banks, multinational companies, and large institutional traders. Only in the last few years with the onset of electronic trading have ordinary traders been able to effectively trade in this market. The Forex market is not a regulated market like the New York Stock Exchange or NASDAQ. There is no SEC looking over Forex trades. However, Forex dealers (not brokers) in the USA are commonly members of the National Futures Association which will arbitrate any trading disputes. Dealers act as the clearing house and counter parties to trades.

One of the welcome basics of currency trading is that there are no commissions paid in Forex trading. In exchange for assuming the market risk of Forex transactions the dealer that a trader used makes his money from the bid-ask spread. The goal of every trader is for the currency pair to move past the bid-ask spread at which time the trader will obtain a profit. Another of the basics of currency trading is the jargon. Beginning traders will here the expression, “pips.” A “pip” is one hundredth of a percent. Because traders trade huge blocks of currency the use of 1/10000 of a dollar or pound or Euro system allows for very small and gradual movements in the price of a currency as relates to another. Trading in larger “jumps” would force many traders to trade in substantially smaller blocks.

Once the trader understands the basics of currency trading it is time to buy a trade station and the computer software necessary for trading. The trader will need sufficient bandwidth for moving the huge amounts of information needed in trading Forex. These technical details are also part of the basics of currency trading. Without a top notch internet connection and sufficient computing power a trader may find himself disconnected from the market just after entering a trade. At that point all of the trading expertise in the world is useless as the computer system boots back up or the internet connection reestablishes itself.

Learning the basics of currency trading is the first step to successful Forex trading. After that the trader will need to learn about what drives the prices of currency pairs and what news sources to consult in staying current with the fundamentals of the market. The Forex market is the largest market in the world with roughly the equivalent in $2 trillion USD traded in various currencies every day. Learning the basics of currency trading and using astute technical and fundamental analysis the trader can profit from the rise and fall of currency value of the US dollar, British Pound, Euro, Swiss franc, Yen, Canadian Dollar Australian Dollar. With the substantial leverage offered in trading Forex a wise and connected trader has the opportunity to make substantial profits.