Currency Trading 101
Forex trading is done in twos or pairs, and as one buys a currency, he or she sells off another currency. Here are the currency pairs that see the most action in the forex market:
# USD/JPY
# USD/GBP
# GBP/USD
# USD/CHF
Basics in forex trading: payment terms
In forex trading, one does not have to pay for a commission or trade, which is how the activities in the stock market run. The investor would pay for the spread, which is the difference between asking prices and bid rates of the pair involved. This spread is set by the company one is linked to. This spread is what makes companies and brokers earn profit.
One trading tip for the newbies is to be careful. There are brokers who would increase the spread when news breaks happen, or even during off-peak moments.
The investor is likely buying or selling currencies simultaneously, so it does not really matter if the market is on the upswing or downward trend -- one could earn something wherever it goes. For example, if the GBP-USD is on the rise, what it translates to is that the pound is heavier than the dollars. When you assume (or guess) that there's good news for the dollars, then you might want to let go of the GBP/USD, then start amassing USD/GBPs.
The price quotes are anchored on the pips. The pips are the smallest unit that a currency pair can be traded at, and they are the last number at the right of a quote. For example, if a bid is 1.0225, and the ask price is 1.0227, the difference between the bid and the ask price is 2 pips.
In the world of forex, there are 2 kinds of traders -- the fundamental and the technical traders. The technical type of traders do business based on so many varying parameters and numbers, while the fundamental kind just work with what the news gives them.
