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What is Forex Trading

What is Forex trading? Forex is an acronym of Foreign Exchange. Forex Trading is the speculative trading of one currency against another. When you trade Forex you trade in currency pairs. When you trade a currency pair, you buy one currency and sell another at the same time. For example, if you wanted to sell Euros because you thought the value of the Euro was going to fall, you would normally sell Euros and buy Dollars as the Dollar is the base currency for most currency pairs. You don’t have to trade Euro Dollar, you can trade the Euro against many currencies, including the Pound, the Yen or the Australian Dollar.

When you trade a currency pair you have to pay a spread. The spread is the difference between the buying price and the selling price. The spread can vary from pair to pair. The most frequently traded pairs have the smallest spread. The most frequently traded pair is Euro Dollar which makes up more than a third of all the transactions on the Foreign Exchange markets. So the spread on Euro Dollar is very tight. When you are trading currencies it is best to trade the major pairs so you have a tighter spread, and the price does not have to move very far before you are in profit.

The major currency pairs are as follows:

EUR/USD Euro v US Dollar
USD/JPY US Dollar v Japanese Yen
GBP/USD Great British Pound v US Dollar
AUD/USD Australian Dollar v US Dollar
USD/CHF US Dollar v Swiss Franc
USD/CAD US Dollar v Canadian Dollar
EUR/JPY Euro v Japanese Yen
EUR/GBP Euro v Great British Pound

The object of Forex trading is to make money obviously. You make money by making pips. Pip stands for Point In Percentage and is a small percentage or a fraction of the price of the currency you are trading in. The way you make money is by putting a monetary value on each pip. For example. I trade in the UK and my account is denominated in British Pounds. The smallest amount per pip i can trade is 50 pence. The largest is £10,000. Say i thought the value of the Euro would rise and i wanted to enter a long trade (up) and had a price target of 40 pips, and a stop loss of 10 pips. I can risk £100 per pip to make a potential £4000. If the price moved against me an went down (short) i would lose £100 for every pip the market moved against me, plus my spread of course. So if the price moved 10 pips against me, and i closed my trade, i would lose £1000 plus my spread, which would be around 1 pip. So in total i would lose £1100. So basically i am risking £1100 to make £4000. This is just an example trade, and every trade is different, sometimes you risk more to make more, or risk less to make less. I trade low risk high probability set ups, so the odds are always in my favor. 🙂

When you open a trade you have to decide how long you wish to have that trade open for. I am a day trader, and most of my trades are opened and closed the same day, sometimes within a few minutes. Occasionally i will roll a trade over until the next day, but more often than not i am in and out within the day. Some traders day trade, some traders trade weekly or monthly time frames, there really is no limit to the amount of time you can hold a trade for, but you will be charged a fee by your broker for rolling trades over until the next day. If you decide that you want to trade longer time frames, weeks and months rather than days, you would be better off trading a future trade rather than a spot trade. A spot trade gives you a tighter spread, but you have to pay rollover charges, but a future is a slightly bigger spread, but there are no rollover charges. You need to decide before you trade, what type of trader you want to be.

I can trade higher time frames as well as day trading but i prefer to day trade. Some people prefer to day trade, some people prefer to trade higher time frames, each to their own. My Forex mentoring program is better suited to day trading, but i can teach you to trade higher time frames if that is what suits you better.

I hope this information has helped you understand a little more about what Forex trading is. This is just basic stuff, and there is more advanced information on the Blog to help you further.

If you want to fast track your learning process, please consider my training and mentoring program. More information here.

Have a great day. 🙂

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