Introduction to Forex Trading
If you want to learn how to trade Forex, you need to take into account that it will take time, effort and willingness. IFC Markets offers you not to spend much time on looking for materials and instead study everything directly with us. The currency exchange market nowadays is one of the most popular spheres for everyone, since the daily turnover on this market is above 4 trillion.
This section reveals the main concepts of Forex trading and gives a great opportunity to learn how to trade in forex market.
You need to get involved in all the details to have full understanding of the market, how it works, what instruments are traded, what are the main concepts in trading, what analytical tools there are for making accurate predictions, which instruments have high liquidity and many more. You might be confused at the beginning but it is not difficult if you treat it seriously. In this section you will find out who are the market players, what main concepts are there that should be remembered and taken into consideration, how to calculate profit/loss and much more.
If you have finally decided to take part in Forex trading and learn how to trade online, then this is the very start point and you need to grasp this information so as to go ahead and use it in practice. So, a specific terminology and trading logic exist, that should be studied before taking any practical step. Besides reading these articles, you can also open a Demo account to see all those concepts on the terminal – the visual memory will help you to understand everything faster and, moreover, for a beginner it is very important to start with a Demo account so as not to waste money.
In addition, we recommend you to follow political and financial events taking place all over the world, as any episode happening in these spheres directly influences the market and its behavior. Overall, you can start trading on a Real account as soon as you see that you are already having profits on your Demo account.
Market players mainly are commercial banks executing orders from exporters, importers, investment institutions, insurance and retirement funds, hedgers and private investors. Commercial banks also perform trading operations in their own interests and at their own expenses. Daily turnover of the largest banks often exceeds several billions of U.S. Dollars and many make their main profit by speculative operations with currency.
Forex is not a roulette because in the core of currency price fluctuations there are certain principles. First of all, currency price depends on its country's economic performance. Secondly, it is linked to preferences and expectations of Forex players. It is all a subject of prognosis which is proved by market analysis containing objective factors rather than casuality.
Typical transaction volume in the interbank trading estimates millions and even billions of US dollars. The participants of the interbank market include banks and their clients - the largest multinational corporations, hedge funds and private investors. Thus, it is evident that the transaction volumes on this market are too high for the majority of private investors.
Foreign Exchange market is the largest decentralized market where the volume of daily transactions equals to billions of dollars. The minimum volume of the transaction in the interbank market is too high and is assuredly not accessible for private investors owning small means. Due to margin trading individual investors have possessed an oportunity to make online transactions with various currency pairs.
A currency pair is always quoted in two prices: Bid for sale and Ask for purchase of a base currency for the quote one.
The difference between Bid and Ask prices is the spread, which is calculated in pips. Taking into consideration the size of the spread is an important factor during trading, because high spread results in a significant share of loss to the client during active trading.
Pip (percentage in point) is the smallest possible change of the quotation. Pip is equal to 0.0001 or 0.00001 for the most currency pairs that are quoted to the fourth or fifth decimal point (for JPY pairs - to the second or third decimal point). Moreover, for the purpose of comparative analysis it is widely accepted among the companies’ website to indicate the pip to the fourth decimal point (for JPY pairs to the second decimal point), while in trading terminals of many companies the main currency pairs are quoted to the fifth decimal point (JPY pairs – to the third decimal point). Quotations, spreads, order distances are measured in pips.
When rolling a position over to a new value date (to "the next day"), an operation called Swap is performed – the company charges or pays a certain amount depending on the interest rate differential between the two currencies involved in the transaction, on its direction and volume.
When opening a long/short position, a purchase/sale of the base currency and a reverse operation with the quoted currency take place. In case of rolling a position on the currency pair AUDUSD over to the next day, in IFC Markets Libor/Libid overnight rates on the US Dollar and Australian Dollar Overnight Deposit/Lending Rate for the Australian currency are used.
Each trading operation results in either profit or loss the calculation of which is performed automatically in the trading platform server. However, it is useful to know how this calculation is formulated. There are 3 important things to consider during the calculation: the volume of the opened position, the asset quotation and the direction of the position (Buy/Sell).
The stock market index is an indicator of the dynamical state of the security market. By comparing current market index value to its previous values it is possible to estimate the market behavior, its reaction to macroeconomic changes and corporate events (mergers, acquisitions, etc.).