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Forex Trading Basics Explained

You must have all seen ads about people making money using Forex trades and all that, especially on various websites. Well they may be a bit exaggerated but still it is good to know about the Forex trading basics and how it all works.

Forex stands for foreign exchange and it is about trading in currencies. Every country has a currency of their own and they can be traded against the currencies of other countries. It is a twenty four hour market which is closed only at weekends from Friday to Sunday evening.

Forex Trading Basics

Forex Trading Basics

The Forex trading is a good way to make money just that you must know the basics of the same. It is no rocket science it is simple and anyone can do it with a little training. We will now discuss some of the Forex trading basics in this article so that you can understand how you can do Forex trading.

Forex Trading Basics

To give you an idea abou the Forex market size, the Forex market reached $ 4 trillion in a day during April 2010. There is a huge potential to make money in Forex trading as many people have been capitalizing on this for years. Here are a few basic facts which you must know before starting this study.

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The currencies are traded in small units which are known as lots. Depending on the number of units of currency a lot is called by different names. For example 1000 currency units constitute a micro lot while 10 micro lots make a mini lot. Therefore a mini lot is ten thousand units. The standard lot is consisting of one hundred thousand units.

1 Micro Lot = 1000 Currency Units

1 Mini Lot = 10 Micro Lots

1 Standard Lot = 10 Mini Lots

  1. Most of the foreign currency trading is done in pairs. There is a slight difference from stock market here. In foreign exchange you must buy one currency and sell another currency. This is why we say that trading happens in pairs.
  2. Another term used in the Forex trading basics is a pip. Pip is a percentage in point and it is the smallest increment of trade. One pip typically equals to 1% arithmetically.
  3. If you are a beginner in Forex trading then always start with micro lots. This will ensure that you make minimum losses. This will give you fewer profits but will help you to really learn the basics of the Forex trade. Once you become confident about the micro lots you can move on to trading in mini lots. This is a very effective tip for all beginners and must be followed. Small profits will encourage you to trade better. It is less demoralising than making losses and leaving in between.
  4. The Forex trading can be done in eighteen currencies. We are not saying that Forex trading is easy you have to be patient and keep practicing to get the Forex trading basics right. Once you are confident you will see your patience has paid off really well.
  5. The Forex trading happens in the forex market just like stock exchange happens in a stock market. More and more stock exchange traders are taking interest in the Forex trading. This is because it is more profitable and for these traders it is easier to understand the basics of the forex trading.
  6. The simple concept of Forex trading is that it works on demand and supply. If a particular currency is in demand the value of that currency increases. The dollar’s value will increase in the foreign exchange market if the demand for it increases. This is due to higher demand of dollar currency in the market. When the volume of dollar rises significantly the demand will automatically reduce thereby reducing the value of the dollars. We hope these points will help you understand what runs the Forex trading.
  7. Well we are not saying that demand and supply is the only cause of increase and decrease in value of foreign currencies. There can be many more reasons. Like economic strength, interest rates, etc. As and when you trade regularly you will be able to understand these factors better. Each one of us has a different aptitude. If you are hard working and you have the patience you can learn the Forex trading with ease. Once you get your strategy right there is no looking back. Each Forex trader has a different strategy that helps them make money. It’s only you who can decide the strategy that you will use. We can only suggest the way you can make the strategy.
  8. You can learn the Forex trading from others who are already into the same. The forex brokers will allow you to open a free virtual account that will allow you to trade with virtual money. Once you get the strategies right you can start live trading. This is the best way to get into Forex trading. Under guidance and virtual trading can really help you to make it big.

We hope that these simple points that we have made on Forex trading basics will help you to understand the concept better and also help you to make more money on the same. This is just a basic over view for a person to start with the Forex trading. These tips if followed will help you to learn the Forex trading basics and ensure that you make the most from the same. As you spend more years in Forex trading you will learn more about the same. Needless to say you will also make money in this process. Many people are making it a good source of earning fast money.

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