The learning curve for Forex trading can be rather steep especially for those who have no prior experience to trading in any financial market. Even though there are only 30 currency pairs in the currency exchange market, compared to the thousands of stock offerings in the equity market, the numerous methodologies and theories inherent to it can pose a real challenge. Being familiar with commonly used jargons is therefore necessary before you even start speculating on the foreign exchange market. Currency Pairs
Currencies are always quoted in pairs in Forex trading. For instance, if you compare the value of the US Dollar against the Japanese Yen, you would see it written as USD/JPY. The 1st item on this quotation is called a quote, the 2nd currency is termed as the base. If the quote is written as USD/JPY = 100.00, it is read as 1 US Dollar is worth one hundred Japanese Yen.
Short and Long Positions
These jargons are heard when making a trade. "Going short" means placing a sell order on a currency pair. Traders do this when a currency's price is predicted to go down. Later on when the currency's price falls as predicted, he can buy it back for a price that is much lower than when he sold it, thus making profit. If investors go long, they are simply buying a security. Investors take make this trade order when indicators show that the currency's price will increase. By buying it at a much lower price, and later reselling it when its value is higher, the trader earns a profit.
Economic Indicator Analysis Versus Market Activity Statistics
No other market that facilitates the trading of securities shows the same degree of volatility as the currency market. This is because the rates existing between any currency pair are affected by several factors, economy being one of the most potent. With that in mind, those who want to participate in Forex trades may need to take economic variables, like a country's Gross Domestic Product and unemployment ratings, into account. This method is called fundamental analysis.
Forex Investors may also take market activity and price shifts into account to make sound trading decisions. This strategy is called technical analysis and a good number of traders prefer this approach.
Margin Buying
To put it simply, using leverage in Forex trading allows you to control large positions for a relatively small cash outlay. Leverage is often considered a double-edged sword because it can magnify your profits when price movements go in your favor. If the investment moves against what the investor predicted, his losses can possibly be much larger than the amount he used for leverage.
Currencies are always quoted in pairs in Forex trading. For instance, if you compare the value of the US Dollar against the Japanese Yen, you would see it written as USD/JPY. The 1st item on this quotation is called a quote, the 2nd currency is termed as the base. If the quote is written as USD/JPY = 100.00, it is read as 1 US Dollar is worth one hundred Japanese Yen.
Short and Long Positions
These jargons are heard when making a trade. "Going short" means placing a sell order on a currency pair. Traders do this when a currency's price is predicted to go down. Later on when the currency's price falls as predicted, he can buy it back for a price that is much lower than when he sold it, thus making profit. If investors go long, they are simply buying a security. Investors take make this trade order when indicators show that the currency's price will increase. By buying it at a much lower price, and later reselling it when its value is higher, the trader earns a profit.
Economic Indicator Analysis Versus Market Activity Statistics
No other market that facilitates the trading of securities shows the same degree of volatility as the currency market. This is because the rates existing between any currency pair are affected by several factors, economy being one of the most potent. With that in mind, those who want to participate in Forex trades may need to take economic variables, like a country's Gross Domestic Product and unemployment ratings, into account. This method is called fundamental analysis.
Forex Investors may also take market activity and price shifts into account to make sound trading decisions. This strategy is called technical analysis and a good number of traders prefer this approach.
Margin Buying
To put it simply, using leverage in Forex trading allows you to control large positions for a relatively small cash outlay. Leverage is often considered a double-edged sword because it can magnify your profits when price movements go in your favor. If the investment moves against what the investor predicted, his losses can possibly be much larger than the amount he used for leverage.
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It can be seen that the advantages of the MetaTrader application outweighs its disadvantages. It is a free software so try it now to help boost your forex trading. For more information on the above topic click forex.
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