Forex is the international bank-to-bank currency market. Forex trade
assumes purchasing or selling the currencies. Due to ever-changing
currency rate, buying a currency at lower price and selling it at higher
one you can gain profit catching its further movement correctly (for
example: correctly determine the news).
Forex market partakers are: banks (central and commercial),
pension funds, insurance companies, brokers, dealers and private
investors. Because of a great participants number and similar deals
volume a lot of transactions are executed during a few seconds.
A huge capital is not required for trading at Forex, as a broker
gives a loan - leverage. Its size is equal to hundredfold amount of
deposit, it means that a trader (participant playing at Forex) enters
the market with a sum exceeding the amount for deals execution
hundredfold.
Trading deal at Forex consists of 2 parts. First: a trader opens
a position with a certain currency pair. Second: he closes the position
with this pair. Trading deals at Forex are closed automatically during
several seconds. However, even such a big deals quantity accomplished by
the traders cannot put a substantial effect on the price.
Position opening in Forex trading is a process of requesting one
currency from a broker for a certain quantity of another. The cost of
the base currency in the first pair is called quotation displayed in the
quoted currency unit. It has 2 figures: Bid - the cost of base currency
sold for quoted one and Ask - the price at which it is bought. A
difference between them is called spread (it is the main income source
for a broker), and point is the minimal price movement which can be
accepted. Currency rate information is always available for those who
operate at Forex market.
Forex trading is carried out by three ways. These methods
involve several trading strategies. Traders with big trading experience
at Forex develop their own strategies for several years, but there are
some approved and really beneficial strategies:
- Day trading (intra-day short term trading) is opening of short
term deals by a trader for 1 or 2 minute period up to couple of hours.
Such deals are usually closed in the same trading day and almost never
carried over the next one.
- News trading. Traders using this kind of trading can always
have a stable profit, making the right analysis of published news. At
the same time, wrong news analysis and position setup can result in
serious losses.
- Midterm trading. According to this kind of trading, a trader
opens long period deals (from 1-2 days up to 1-2 months). Getting a big
profit following this strategy is possible in case the deal remains
opened not less than a few days. A good capital is needed for backing up
such deals.
- Technical analysis in Forex trade consists in the ability to
estimate and make the right analysis of different chart types (bar,
Japanese candles, lines) with currency pairs and figures displayed on
them that gives an opportunity to forecast rate fluctuations of the
currency pairs.
- Carry trade is gain acquisition from interest rates difference of currency pairs.
Using this type of trade, trader's deals remain opened for a
long period of time (from 2-3 months to 1 year and more). Such trading
requires a big capital. It is used for waiting when the deal becomes
profitable in order not to bear losses until the price changes to the
right direction.
Also one of the advantages of Forex trade consists in that the
work is run 24 hours 7 days a week (from Monday to Friday), therefore,
regardless of the difference between the time zones and location you can
continue taking part in trades. Such opportunity of trading at Forex is
provided by the world financial centers managed by the national banks
together with international banks where different countries capital is
kept.
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