Introduction to Forex Trading
When trading Forex one operates currency trading account in order to capitalize on the currency exchange rate fluctuations. No surprise there is the specific terminology one has to familiarize yourself with not to mention the overall trading logics before taking any practical steps.
This section defines and gives decribtion of the key elements of the trading process.
In Forex currencies are exchanged for one another. Each currency has its own ISO currency code (ISO 4217). Under specific symbols there are also other investment vehicles available in Forex such as Commodities and CFDs (Contracts for Difference) on Shares, Stock Indices and Commodities.
Being the World's Reserve Currency US Dollar is the most traded currency in the World. Up to 85 % of all trades in Forex in 2010 included US dollar. No wonder why currency pairs including US Dollar are referred to as Major currency pairs and are the most traded currency pairs in Forex
Currency pairs that do not include US Dollar are reffered to as Major currency cross pairs. These are subsequent from the individual major pairs but are quoted independently from each other.
| Abbreviation | Name, nickname |
| EURSEK | Euro vs Swedish krona |
|---|---|
| GBPSEK | British pound vs Swedish krona |
| USDNOK | US dollar vs Norwegian krone |
| USDSEK | US dollar vs Swedish krona |
| USDSGD | US dollar vs Singapore dollar |
In Forex you capitalize on currency rate fluctuations. The more the rate changes the bigger your profit or loss is.
At every moment of time a currency pair is always quoted double price: Bid for sale and and Ask for purchase of a base currency in a pair for the quote one.
Pip (percentage in point) is a volume unit and equals the smallest currency rate increment. Pip is equal 0.0001 or 0.00001 for most currency pairs that are quoted to the fourth or fifth decimal point (for JPY rates - to the second or third decimal point). Pips are used to measure rates, spreads, distance setting orders.
Once completed a trading operation always results in either profit or loss.
Forex Trading is trading on margin. WIth trading leverage offered by broker you only need your margin to cover positions you open.
