The Forex market that we are talking of is not easy to
fathom as it is so large that the daily turnover tops four trillion dollars a
day. Traders who intend to trade in this market require a good understanding of
the nature of the market to begin with.
High liquidity, high levels of leverage and low dealing
costs are the main characteristics of the Forex market. Traditionally, this
market was limited to big time players such as banks, governments and other
financial giants. Since technology in the form of the Internet made vast
changes in currency trading making it totally online in its operations the
currency trade has expanded in leaps and bounds. Now, even small time retail
traders with just a few hundred dollars are able to trade currency.
Margin Trading
A margin deposit is the starting point for traders. A broker
who offers 1% margin deposit will want the trader to deposit only 1% of the
total amount that he wants to trade with. This means that a person who deposits
$10,000 can trade to the tune of one million dollars. Consequently, both
profits and losses in the Forex market can be substantial. It is best to
understand this and trade carefully with appropriate safeguards and strategies.
Currency pairs
Trading in the Forex market is done in currency pairs. The
trader will buy currency while selling another. The currency pairs are shown as
USD/GBP, CHF/JPY and so on. Trading is always a speculation of one currency’s
strength being pitted against that of the other currency in the pair. The first
currency is known as the base currency while the second in the notation is
known as the variable currency.
Dealing Spread
The currency pair that is being traded will have a buying
price as well as a selling price. These are also known as the bid price and ask
price. It is the difference between these two prices that is usually known as
the dealing spread. If a trader accepts the price and is confirmed by the
dealer the trade will be concluded. The market works at a fast pace and is
always on the move. The trader can always be in touch with the market and the
way trading is conducted.
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