An Introduction to Foreign Exchange (Forex)

forex-tradingForeign exchange, or forex as it is most commonly referred to is a type of investing that involves purchasing certain currencies and profiting from the movement of these currencies against others. Generally forex is seen as a difficult to learn investing medium, but it can be very profitable to individuals who take the time to learn and trade properly. But be warned you can lose a lot of money in the currency markets, just as you can lose a lot of money in almost any other investing medium. Generally you will also need a higher starting amount of capital when you open a trading account.

The Basics

There are a number of “basics” when it comes to FX trading. But today I’ll just cover 3 of the very beginner tips.

The first is currency pairs. A currency pair is 2 currencies that you can trade against one another. For example you may choose to buy the US Dollar against the UK Pound. The currency pair would be the $/£ and you would be buying the dollar in the hope that when you sell, the dollar will go up and hence be “stronger” leading to a profit when you trade back or sell your currency back.

Obviously currency fluctuations aren’t drastic, which means small changes are usually not seen by the general market. For example a small 40 PIP change might only change the currency prices you see in the airport by 0.01c per dollar, but that would actually change the “spread” by almost 4 DPs. Which is alot for the average FX trader.

PIPs are the final topic I’m going to outline – PIPs are how forex traders measure their profit or losses. As everyone has different “units”, for example if you are trading with an account that has a £100,000 bankroll, you can measure profit/loss in PIPs, this can then be taken to someone who has a bankroll of only £10,000 and they can still make the same percentage profit.

investingWhat Next?

I recommend learning everything you can about the markets before even opening an account. Personally I would recommend going to a website called elite forex trading strategies, they have alot of great posts on how and who to go with to get started and make your first profitable trade, as well as a free ebook if you sign up to their email list, which again has some great information on, so I would recommend this site. If you decide to go to other places just remember that results are everything. Unless people can show live-real-time results, they should be ignored. Many people are very hyped up when it comes to forex, and are self-proclaimed gurus, but generally don’t make any money. Obviously these should be avoided!

I hoped you liked this intro to forex trading, there will be more in-depth articles and techniques in the future. Cheers.

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