Currency Trading for Beginners

The Foreign Exchange Market which is also called as the Forex or the Fx market is a huge financial market with daily market volumes of $3-4 trillion. The Forex market is the largest and most liquid financial market in the world.

 

Forex Market History

The Forex Market began during the 1970s after 30 years of government restrictions regarding the foreign exchange transactions. The Forex market began after the end of the Bretton Woods Agreement which actually became a global monetary system for 30 years. The Forex market was born as the world's major countries gradually switched from fixed currency rates (Bretton Woods) to floating exchange rates.

 

Forex Market Characteristics

(1) The 24-hour operation, 5 days per week (Operating from Sunday 20:15 GMT to Friday 22:00 GMT)

(2) Enormous liquidity, tight spreads

(3) Wide geographical distribution (London in the largest Forex center in the world)

(4) Low margin requirements and very high capital leverage

 

Forex Market Participants

There are many different participants in the Forex Market:

1) Central Banks

2) Commercial Banks

3) Global Trade Companies

4) Forex Brokers

5) Institutional Investors

6) Retail Traders

Central Banks: US Federal Reserve | European Central Bank | Bank of Canada | Bank of England | Bank of Japan | Reserve Bank of Australia | Swiss National Bank

Forex Terminology

Trading Forex Glossary

Basic terminology regarding the Foreign Exchange market that every currency trader should be aware of.

 

What is Bid / Ask Price

All Forex pairs are quoted with two prices: the bid and the asking price. The bid price is the price at which a Forex broker is willing to buy and thus a Trader can sell a currency at that price. The asking price is the price at which a Forex broker is willing to sell and thus a Forex Trader may buy at that particular price.

 

What is the Forex Spread

The spread which is measured in pips is the difference between the bid and the asking price of a Forex currency pair. Narrow spreads are better for Forex traders, especially for intraday traders. Popular Forex pairs such as EUR/USD, GBP/USD, USD/JPY are offered in tighter spreads than unpopular Forex pairs.

For example, if the bid price is 1.1000 and the asking price is 1.1002, the spread is 2 pip.

 

What is Pip

A pip is the minimum incremental move of any Forex currency pair. For example, a pip is equal to a EUR/USD movement from 1.1000 to 1.1001.

Formulating Forex Ratings

Forex Reviews

Choosing the right Forex Broker is absolutely crucial when trading Forex currencies. Until today, brokers were rated by individual users, the problem was that most ratings in the trading industry are fake. The introduction of the Rating Brokers Formula is a TradingCenter.org innovation and serves an important mission: To provide a 100% objective rating framework in order to evaluate the world’s financial brokers.

 

The Rating Formula Structure

Originally, the rating formula structure contained 4 major trading factors:

1) Safety of your Funds

2) Minimum Commissions and Fees Paid

3) Maximum Number of Trading Options Offered

4) Maximum Technological Efficiency Provided

Later, factors 3) and 4) were merged in order to make the rating formula simpler and more efficient.

 

More on the Rating Formula:

» Forex Broker Rating Formula –V.4.0, TradingCenter.org