Forex Currency Trading Explained -- Fx Trading

HOURSAt 7:00 pm Sunday, New York time, trading begins as markets open in Tokyo, Japan. Next, Singapore and Hong Kong open at 9:00 pm EST, followed by the European markets in Frankfurt (2:00 am), and then London (3:00 am). By 4:00 am, the European markets are in full swing, and Asia has concluded their trading day. The U.S. markets open first in New York around 8:00 am Monday, as Europe winds down. Australia will take over around 5:00 pm, and by 7:00 pm Tokyo is ready to re-open.All times are quoted in Eastern Standard Time (New York).FX or Forex, currency trading is the trading of one currency against another. In terms of trading volume, the currency exchange market is the world's largest market, with daily trading volumes in excess of $1.5 trillion US dollars. This is orders of magnitude larger than the bond or stock markets. The New York stock exchange, for example, has a daily trading volume of approximately $50 billion. Currencies are traded for hedging and speculative purposes. Various market participants such as individuals, corporations, and institutions trade forex for one or both reasons. Corporate treasurers, private individuals and investors have currency exposures during the the regular course of business. The FXTrade Platform is an ideal platform to hedge any such exposure. An investor, who has bought a European stock and expects the EUR exchange rate to decline, can hedge his currency exposure by selling the EUR against the USD. currency markets are ideally suited for speculative trading. The foreign exchange market has a daily volume in excess of 1.5 trillion USD, which is 50 times the size of the transaction volume of all the equity markets taken together. This makes the foreign exchange market, by far, the most liquid and efficient financial market of the world. Thanks to its efficiency, there is little or no slippage of market price for the execution of even large buy and sell orders. Traders are able to take advantage of intra-day volatility thanks to the low spreads and enter positions for short time periods, such as minutes and hours. Unlike equity trading, where restrictions limit a trader's ability to profit from a market down turn, there are no such constraints on currency trading. Currency traders can take advantage of both up and down trends thus increasing their profit potential.The most commonly traded currencies are: USD, EUR, JPY, GBP, CHF, CAD and AUD.The most commonly traded currency pair is EUR/USD.Forex Symbol Guide Symbol Currency Pair Trading Terminology GBP/USD British Pound / US Dollar "Cable" EUR/USD Euro / US Dollar "Euro" USD/JPY US Dollar / Japanese Yen "Dollar Yen" USD/CHF US Dollar / Swiss Franc "Dollar Swiss", or "Swissy" USD/CAD US Dollar / Canadian Dollar "Dollar Canada" AUD/USD Australian Dollar / US Dollar "Aussie Dollar" EUR/GBP Euro / British Pound "Euro Sterling" EUR/JPY Euro / Japanese Yen "Euro Yen" EUR/CHF Euro / Swiss Franc "Euro Swiss" GBP/CHF British Pound / Swiss Franc "Sterling Swiss" GBP/JPY British Pound / Japanese Yen "Sterling Yen" CHF/JPY Swiss Franc / Japanese Yen "Swiss Yen" NZD/USD New Zealand Dollar / US Dollar "New Zealand Dollar" or "Kiwi" USD/ZAR US Dollar / South African Rand "Dollar Zar" or "South African Rand" GLD/USD Spot Gold "Gold" SLV/USD Spot Silver "Silver" CURRENCY PAIRSAll currencies are assigned an International Standards Organization (ISO) code abbreviation. In currency trading, these codes are often used to express which specific currencies make up a currency pair. For example, USD/JPY refers to two currencies: the US Dollar and the Japanese Yen. SPOT FOREX Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EUR/USD. That is, sell Euros and buy US dollars. The following is guide for quoting conventions: What does it mean to be "long" or "short" a currency?Being long means buying a currency. Being short means selling a currency. If a trader goes long USD/JPY, he or she buys US Dollars and sells Japanese Yen. Buying a currency is synonymous with taking a long position in that currency. A trader takes a long position in a currency if he or she believes it will appreciate in value.If a trader goes short USD/JPY, he or she sells US Dollars and buys Japanese Yen. Selling a currency is synonymous with shorting that currency. A trader would short a currency if he or she believes it will depreciate in value.CURRENCY TRADING: BUYING AND SELLING CURRENCIESAll Forex trades result in the buying of one currency and the selling of another (currency trading), simultaneously. Buying ("going long") the currency pair implies buying the first, base currency and selling an equivalent amount of the second, quote currency (to pay for the base currency). It is not necessary to own the quote currency prior to selling, as it is sold short. A trader buys a currency pair if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling ("going short") the currency pair implies selling the first, base currency, and buying the second, quote currency. A trader sells a currency pair if he/she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency. An open trade or position is one in which a trader has either bought or sold one currency pair and has not sold or bought back an adequate amount of that currency pair to effectively close the trade. When a trader has an open trade or position, he/she stands to profit or lose from fluctuations in the price of that currency pair.Forex is the backbone of all international capital transactions. Compared to the slim profit margins rendered in other areas of commercial banking, huge profits are generally produced in a matter of minutes form minor currency market movements. Some banks generate 60% of their profits from trading currency aggressively.Trading volume has been growing at a rate of 25% per year since the mid-1980s and therefore it is not difficult to accept the notion that the currency market is one of the world fastest growing industries. What used to require days to accomplish in Europe or Asia now oly takes a few minutes. Needless to say, technology has changed everything and millions of Dollars are moved from one currency into another every second of every day by major banks through computers and for the average investor, with the touch of a computer key.Foreign exchange is the backbone of all international capital transactions. Compared to the slim profit margins rendered in other areas of commercial banking, huge profits are generally produced in a matter of minutes from minor currency options market movements. The price agreed upon or negotiated for the currency purchased is referred to as the foreign exchange rate. Major commercial banks in the money market centers throughout the world are responsible for the majority of foreign currencies bought and sold. Trading volume has been growing at a rate of 25% per year since the mid-1980s and therefore it is not difficult to accept the notion that the currency options is the world's fastest growing industry. What used to require days to accomplish in Europe or Asia now only takes a few minutes. Needless to say, technology has changed everything and millions of Dollars are moved from one currency into another every second of every day by major banks through computers and for the average investor, with the touch of a phone.FOREX BASICS - What's a PIP A "pip" is the smallest increment in any currency pair. CALCULATING THE WORTH OF A PIP How much in dollars is this movement worth, for example, per 10,000 Euros in EUR/USD? How much is one pip worth per 10,000 Dollars in USD/JPY? We will refer to the size, in this case 10,000 units of the base currency, as the "Notional Amount". The formula for calculating a pip value is therefore: (one pip, with proper decimal placement / currency exchange rate) x (Notional Amount) Using USD/JPY as an example, this yields: This is why pip (or "tick") values in currency futures, where the currency is quoted first, are always fixed.