Forex markets are open 24 hours a day & 7 days a week but liquidity is available for retail traders only for 5 days a week.(through Monday to Friday )during 5 working days any time traders can open & close trade.
Tuesday, November 15, 2011
Disadvantage of Leverage
Due to leverage when you purchased large amount with minimum margin for example if you have $500 balance in your trading account and you purchased 10k Euro lot with $140 margin now your used margin is $140 and your useable margin is $360 if you don’t place a stop order for your trader in case rate is moving against you when your loss reach at $360 then you receive a margin call and broker will close your trade in loss.
Advantage of Leverage
Due to leverage broker offer minimum margin deposit ($300, $500, $1000, $2000 etc) for a mini account and10k (10,000 units) lot is fixed for mini account. For example 10,000 Euro worth is 14000 US Dollar you have advantage of leverage that you can purchase 10k Euro with $140 margin
What is Leverage & Margin?
Currencies are available for trading in fixed lot size from brokers
For example
your trading account is mini account and you decided to purchase 10,000(10k) Euro because lot size is fixed in mini account that mean you can purchase minimum 10,000 Euro at once.
There is different fixed lot size for different account for example (10k)10,000 units are fixed for mini account and (100k)100,000 units are fixed for standard account.
Now we discusses about lot price
First we discusses open market (money changer) example because you’re most familiar with money changer shop and it is easy to understand.
Let’s suppose you have Pakistani rupee in your pocket and you want purchase 10,000 Euro. You ask to money changer that what is Euro buying price against Pakistani rupee.Money changer check the live present exchange rate of pair EUR/PAKrupee.
Pair Exchange rate
Buy price / sell price
EUR/PAKrupee 126.587 / 125.587
Here you see a pair with two exchange rate one is buy price and second is sell price. Different between buy price and sell price is called spread. Spread is income of money changer or broker income if you’re doing online forex trading. In above pair Euro is bias currency and Pakistani rupee is counter currency. if you have counter currency(Pakistani rupee) in your pocket and you want purchase bias currency (Euro) then money changer give you buy price 126.587 for single units. if you have bias currency (Euro) in you pocket and you want purchase counter currency (Pakistani rupee) then money changer give you sell price 125.587 for single units.
In case of buy euro from open market against Pakistani rupee
Single euro buying price = 126.587
You want purchase = 10,000 euro
Total cost of 10,000 euro in pak rupee = 10,000 multiply 126.587
= 1,265,870
EUR/PAKrupee is not available in international market for trading we consider an other pair
Pair Exchange Rate
Buy price / sell price
EUR/USD 1.4000 / 1.4397
In case of buy euro from open market against us dollar
Single euro buying price = 1.4000
You want purchase = 10,000 euro
Total cost of 10,000 euro in us dollar = 10,000 multiply 1.4000
= $14,000
(10,000 euro = 14,000 us dollar)
You need $14000 for 10k lot( 10,000 euro) from open market.10k lot price is very high and thousands of small investors haven’t purchasing power even a single lot.This is reason the concept of leverage was introduced in the online forex trading.
In case of buy euro from online forex broker against us dollar if your broker give you leverage 100:1
Single euro buying price = 1.4000
You want purchase = 10,000 euro(10k lot)
Margin require according to 100:1 = $14,000/100=$140
For example
your trading account is mini account and you decided to purchase 10,000(10k) Euro because lot size is fixed in mini account that mean you can purchase minimum 10,000 Euro at once.
There is different fixed lot size for different account for example (10k)10,000 units are fixed for mini account and (100k)100,000 units are fixed for standard account.
Now we discusses about lot price
First we discusses open market (money changer) example because you’re most familiar with money changer shop and it is easy to understand.
Let’s suppose you have Pakistani rupee in your pocket and you want purchase 10,000 Euro. You ask to money changer that what is Euro buying price against Pakistani rupee.Money changer check the live present exchange rate of pair EUR/PAKrupee.
Pair Exchange rate
Buy price / sell price
EUR/PAKrupee 126.587 / 125.587
Here you see a pair with two exchange rate one is buy price and second is sell price. Different between buy price and sell price is called spread. Spread is income of money changer or broker income if you’re doing online forex trading. In above pair Euro is bias currency and Pakistani rupee is counter currency. if you have counter currency(Pakistani rupee) in your pocket and you want purchase bias currency (Euro) then money changer give you buy price 126.587 for single units. if you have bias currency (Euro) in you pocket and you want purchase counter currency (Pakistani rupee) then money changer give you sell price 125.587 for single units.
In case of buy euro from open market against Pakistani rupee
Single euro buying price = 126.587
You want purchase = 10,000 euro
Total cost of 10,000 euro in pak rupee = 10,000 multiply 126.587
= 1,265,870
EUR/PAKrupee is not available in international market for trading we consider an other pair
Pair Exchange Rate
Buy price / sell price
EUR/USD 1.4000 / 1.4397
In case of buy euro from open market against us dollar
Single euro buying price = 1.4000
You want purchase = 10,000 euro
Total cost of 10,000 euro in us dollar = 10,000 multiply 1.4000
= $14,000
(10,000 euro = 14,000 us dollar)
You need $14000 for 10k lot( 10,000 euro) from open market.10k lot price is very high and thousands of small investors haven’t purchasing power even a single lot.This is reason the concept of leverage was introduced in the online forex trading.
In case of buy euro from online forex broker against us dollar if your broker give you leverage 100:1
Single euro buying price = 1.4000
You want purchase = 10,000 euro(10k lot)
Margin require according to 100:1 = $14,000/100=$140
($140 is 1% of $14000)
Forex Brokers allows trader to buy a currency lot without having total cost of lot. Due to the leverage forex trader have the ability to buy a large lot of money using very small amount and borrowing the rest amount from the broker.For Example if your leverage ratio is 100:1 then you can buy 10k lot of euro if you have $140 in your trading account. This small amount is called margin “good faith deposit” used to buy a currency lot from the broker.
Forex Brokers allows trader to buy a currency lot without having total cost of lot. Due to the leverage forex trader have the ability to buy a large lot of money using very small amount and borrowing the rest amount from the broker.For Example if your leverage ratio is 100:1 then you can buy 10k lot of euro if you have $140 in your trading account. This small amount is called margin “good faith deposit” used to buy a currency lot from the broker.
when you open a trading account for online forex trading and deposit fund into your trading account this deposit is called margin deposit because your trading account is margin account. In margin account you can purchase currencies lot with only 1% or 2% of total cost of a lot for example if 10,000 euro is equal to 14000 us dollar you can buy 10,000 euro if you have only 1% of $14000 ($140) in your margin account.
What is Fundamental analysis?
Fundamental analysis is methods which evaluate assets on announcement of economic number these economic numbers are also known as economic indicators. Government agencies are published these number. If the number is positive for economy then the value of currency will increase if number is negative then the value of currency will decrease. Most important economic indicators are below.
- Payroll Employment
- Unemployment Rate
- GDP
- Trade Balance
- Interest rate
What is Technical Analysis?
Technical analysis is method which predicts the future rate level on the base of price movements of the past. There are different methods used in the predicting most popular are below
- MACD
- Stochastics
- Bollinger Bands
- RSI
- Moving Averages
- Support and Resistance
- Candlestick Patterns
- Trend Trading
- Money Management
- SSI
- Range Trading
- Trading the News
- Elliott Wave
Technical indicators help you in observing future price movement trend and direction this part of study is very important because your loss and profit is depend on your trade decisions if you know exact use of technical indicators then you can observe future price levels then easily you can decide entry and exit points and you can also set a stop loss according to technical indicators calculation and your money management rules.
Forex Basic
What is Forex?
Forex is the market where currencies are traded on Internet. Online Forex Trading is huge and fast growing business all over the world with a daily trading volume is almost 4 trillion dollars. It operates through Corporations. Firms, Banks and Individual Traders .
What is Brokerage firm or Broker?
A Broker or Brokerage firm Provide trading platform and facilities for Clients. All reputable firms are regulated entities.
Who is Referring Broker?
Referring Brokers are authorized by a Brokerage firm for purpose of referring new clients to the firm.
What is Forex Trading Account?
Forex trading account maintained by a trader with any brokerage firm. Through this account trader can buy and sell currencies on margin for earning Profit.
What is Demo Account?
Demo account is provided by Brokerage firm for practicing to the new peoples who want learn about forex trading. They can trade with virtual money (without real money) in demo account. Newcomers can develop trading skill during trading on demo account everything is original without money.
What is Trading Account Statement?
This statement keeps record of Deposit fund by trader in trading account, Withdrawal fund from trading account, Trading transactions, Profit and Loss.
What is Trade?
Buy a currency (open a trade) and then later sell it (close the trade) is called Trader
What is Currency Pair?
Two currencies are involved in a currency pair for example EUR/USD First currency is called base and second currency is called counter currency.
What is Exchange Rate?
The exchange rate means how much the value of base currency against the counter currency in a currency pair, for example EUR/USD exchange rate is 1.2500 that mean one euro value is equal to 1.2500 US dollars
What is an Ask & Bid Rate?
Every currency pair has two exchange rate one is Ask (buying rate) second is Bid (selling rate).Ask rate is an offer rate for buying base currency from Broker. And Bid Rate is an offer rate for selling base currency to the Broker. Ask rate is higher then Bid rate.
What is Spread?
Different between Ask & Bid rate is called spread.
What is Lot?
Lot means the number of units which you can purchase in one transaction for example if you purchase 10K lot of EUR/USD. That mean you purchase 10,000 euro against the us dollar. Lot size is fixed for different accounts, in mini account lot size is (10K mean 10,000 units), in standard account lot size is (100K mean 100,000 units).
Forex is the market where currencies are traded on Internet. Online Forex Trading is huge and fast growing business all over the world with a daily trading volume is almost 4 trillion dollars. It operates through Corporations. Firms, Banks and Individual Traders .
What is Brokerage firm or Broker?
A Broker or Brokerage firm Provide trading platform and facilities for Clients. All reputable firms are regulated entities.
Who is Referring Broker?
Referring Brokers are authorized by a Brokerage firm for purpose of referring new clients to the firm.
What is Forex Trading Account?
Forex trading account maintained by a trader with any brokerage firm. Through this account trader can buy and sell currencies on margin for earning Profit.
What is Demo Account?
Demo account is provided by Brokerage firm for practicing to the new peoples who want learn about forex trading. They can trade with virtual money (without real money) in demo account. Newcomers can develop trading skill during trading on demo account everything is original without money.
What is Trading Account Statement?
This statement keeps record of Deposit fund by trader in trading account, Withdrawal fund from trading account, Trading transactions, Profit and Loss.
What is Trade?
Buy a currency (open a trade) and then later sell it (close the trade) is called Trader
What is Currency Pair?
Two currencies are involved in a currency pair for example EUR/USD First currency is called base and second currency is called counter currency.
What is Exchange Rate?
The exchange rate means how much the value of base currency against the counter currency in a currency pair, for example EUR/USD exchange rate is 1.2500 that mean one euro value is equal to 1.2500 US dollars
What is an Ask & Bid Rate?
Every currency pair has two exchange rate one is Ask (buying rate) second is Bid (selling rate).Ask rate is an offer rate for buying base currency from Broker. And Bid Rate is an offer rate for selling base currency to the Broker. Ask rate is higher then Bid rate.
What is Spread?
Different between Ask & Bid rate is called spread.
What is Lot?
Lot means the number of units which you can purchase in one transaction for example if you purchase 10K lot of EUR/USD. That mean you purchase 10,000 euro against the us dollar. Lot size is fixed for different accounts, in mini account lot size is (10K mean 10,000 units), in standard account lot size is (100K mean 100,000 units).
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