Posted by forex at 9:21 AM
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Currency Pairs
1. Study which currencies you wish to trade in. Currencies are quoted in pairs: the first one is the base, or home currency, which is the one the quote is based on you buying or selling; the second is the currency you would be buying. If your currency pair is Euros and U.S. dollars this would be shown as EUR/USD. If you buy this pair you are buying Euros and selling U.S. dollars at the same time. You may buy or sell a currency pair depending on which way you think the currencies will move against each other. You are said to be 'long' of the currency you buy and 'short' of the one you sell.
2. Understand how the prices are shown. There are two prices quoted for each currency pair: a buying price and a selling one. The difference between these two prices is known as the spread. This is how the person quoting the price makes his profit, by earning the difference between the buy and sell prices.Typically, the spread for an actively quoted currency pair will be two or three basis points. On the EUR/USD pair for example, a basis point will be 100th of a cent, so the quote could be 1.3720/1.3722. On a trade of $10,000 a basis point is worth $1.
3. Decide on the margin you will use. Foreign Exchange (or FX) trading accounts work on a margin basis. This means you don't have to lodge the full amount of any deal with the company you are trading with. It is possible to leverage your funds by one hundred times or more. One website, Forexyard, allows a margin of .5 percent, meaning leverage of 200 times is possible. Be very careful when deciding how much leverage you are comfortable with. The more leverage you use, the more dangerous your trading is, as you open yourself up to larger and larger risk and, therefore, possible losses. Forexyard recommends that a maximum of 10 times leverage is used for new accounts.
4. Choose whether you will trade on a spot or forward basis. Spot trades settle in 48 hours, while forward trades are for a specified date in the future. Most trading platforms will roll over spot trades automatically on settlement data to enable trading positions to be held for longer.