The Foreign Exchange market also known as FX is a market where worldwide exchange of currencies takes place in Pairs.
Forex trading is a serious business since it involves playing with your hard earned money, so it is vitally important that you are educated and informed before committing your money to the markets. For a novice trader, who is just starting out, he may have to juggle with complex terminologies and symbols used which can puzzle you. Therefore it is very necessary to have right guidance and proper education before getting full-fledged involved in this lucrative market.
For starting out, an investor should know the basic terminology and symbols including how to interpret forex quotes. In every FX transaction, an investor is simultaneously buying one currency and selling another. These two currencies together make a pair. This is an example of a foreign currency exchange rate of the dollar versus the INR:
A person may buy Indian rupees when the Yen to Dollar ratio increases, then sell the rupees and buy back American dollars for a profit.
USD / INR = 40.20
Though there are various currencies all over the world, 90% of daily transactions involve trading a group of currencies known as the "Majors." These currencies include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. The four most actively traded currency pairs are the US Dollar / Japanese Yen (USD / JPY), Euro / US Dollar (EUR / USD), British Pound / US Dollar (GBP / USD), and the US Dollar / Swiss Franc (USD) / CHF).
Forex trading takes place throughout the world plus it is open 24 hours a day unlike the stock market which is open for only few hours.
When a currency trader involves in trading transactions he buys the currency with the expectation of it value getting appreciated in course of time versus the currency sold.
So how fairly he predicts the exchange rate movement is what will help in determining his success rate in forex market.
Example of Currency trading profit:
Suppose your deposit equal 2000 USD. Leverage 1: 100 on Forex Market allows to operate the sum equal 200 000 units of base currency.
You expect decreasing of US currency cost against general world currencies on Forex Market. And decide to sell 50 000 USD against JPY at 111.10 on August, 31, 2005.
A week later you decide to close your short position USD / JPY and buy USD against JPY at 109.15.
Thus, the financial result of this trade on Forex Market equal:
(111.10-109.15) * 50 000 = 97 500 JPY (or 97 500 / 109.15 = $ 893.26)
These are the basic fundamentals of forex trading. After grasping the basic concept, now the most gradual and easy process to start investing in forex market confidently is with the help of automated software. This software works on auto-pilot, handling most of the analysis and execution task, you just need to setup a stop loss order so that the software doesn't sale beyond the price set by you.