Forex Market Tutorial

Learning to trade the forex market will be much easier for beginner forex traders that start by learning forex trading basics as they will have the basic ideas and concepts that are required to make it easy to understand what is forex trading and how to carry out forex trading.

What is Forex

The forex market is one most liquid and fast paced financial market. The forex market until recently has only been accessible to large financial institutions, large corporation, hedge funds and the extremely wealthy individuals who could afford to trade in this market.

Now with the advancement in technology and the growth of the internet forex and the coming up of retail forex brokers forex has now become accessible to retail traders and anyone with a computer that is connected to the internet can start trading forex. The minimum starting amount required to start trading is $100 dollars making forex trading affordable to many retail traders and investors.

The retail investor can now get access to the online currency market through these retail forex brokers. All a trader requires is to open an account with a forex broker and the trader can then trade with their broker from anywhere in the world.

The retail forex brokers also provide traders with the capital required to trade in the forex market using leverage. In the currency market currencies are traded in standard lots and one standard lot is equal to 100,000 units of currency. Because many traders cannot afford this, brokers provide capital to traders and traders can borrow this capital from their forex brokers and trade with it using leverage. For example a broker will provide leverage of 100:1 meaning that a retail trader can borrow up to 100 times of the capital they have. Therefore, if a trader has capital of $1,000 dollars in their account using leverage 100:1, they can borrow up to 100 times their capital, this will be $1,000 multiplied by 100, which is equal to $100,000 dollars which the trader will now control and the trader can trade with this amount in the forex market. This means that a trader with only $1,000 dollars can now trade one standard lot in Forex after using leverage of 100:1 from their forex broker.

Leverage which means that a trader has access to borrowed capital and can trade with this borrowed capital provided by their forex broker is what makes Forex trading accessible to may retail forex traders. This leverage is what has contributed to the growth and popularity of forex trading. In forex trading 95% of all trading transactions is carried out by retail forex traders.

Currency Market Moves

In forex, currencies are always moving up or down and it is this movement that traders want to trade in order to try and make a profit from these currency moves. The daily currency fluctuation of most currencies is very small and most currency will move less than 1 % in value - this movement is less than 1 cent move daily. This is why forex brokers provide leverage and why most traders use leverage so that they can multiply the profits from these market moves. It is also why currencies are traded in big lots of 100,000 units of currency so as to increase the profits per transaction.

For example if a trader has $1,000 dollars in their account and the trader is using 100:1 leverage, it means that this trader can use this leverage provided by their broker to open a standard lot of $100,000 units of currency. For one standard lot the profit per pip is $10 which means if the currency pair that a trader is trading moves 50 pips, then the profit a trader will make will be equal 50 pips multiplied by profit of $10 per pip when trading one standard lot, therefore the total profit will be $500 dollars that a trader will make from this transaction and this profit will be added to their account balance and the trader will then have an account balance of $1,500 after making profit from this trade. Likewise, if the trade moves against the trader by 50 pips the trader will then lose a total of $500 dollars which will be subtracted from their account balance and their balance after the trade will be $500 dollars.

The deep liquidity in the currency market means that traders can trade the market at any time as there are always other traders willing to carry out trading at any time of the day. This liquidity is available because there are very many traders in the forex market trading at any one given time. The forex market daily turnover is $7.2 trillion and this means that there is a lot of liquidity in the currency market at any one given moment. With the availability of this liquidity trades in the currency market can be opened and closed within seconds.

This liquidity provides a lot of trading opportunities for investors and currency trader wanting to trade the forex market.