Forex Basics

What is forex?

Forex, or foreign exchange is the market that deals with currencies of the world. The forex market is largely concentrated within the banking sector also known as the interbank markets. Trillions of dollars or transactions are conducted every day, involving multiple currencies.

When you trade forex, you are essentially buying one currency for another. This is one of the many things that makes forex trading so different from trading stocks or bonds. Unlike most of these securities that are traded individually, with Forex you trade the currency pairs.

For example, when you trade EURUSD, you are either buying EUR and selling USD or selling EUR and buying USD simultaneously.

When the exchange rate fluctuates against the other currency, you can make profits (and even losses).

Brief introduction to forex trading terminology

Here, you can find some important information on the forex trading terminology that is widely used in the markets.

What is a spread?

The spread is a difference between the Bid and Ask prices. The bid price is where you can sell and the ask price is where you can buy. The bid price is always lower than the ask price. Banks make a profit from the spreads.

How are forex prices quoted?

The forex prices are quoted as the bid and ask price, or the selling and the buying price. The price you see for a currency pair is the quote currency. For example if EURUSD price is 1.1009, this means that 1 euro is equal to $1.1009. Here, 1.1009 is the quote currency.

Another example is USDJPY where you can see a price of 110.50. This means that 1 US dollar is equal to 110.50 Japanese yen.

What is leverage?

Leverage allows you to magnify your trading capabilities. Leverage is quoted as a ratio such as 1:100. This means that for every $1 you have, you can trade up to $100 on margin. Leverage and margin are two important concepts in forex trading. Having a good understanding of this is important towards determining your success in forex trading.

Retirement & College Savings

You’re cruising along at 35,000 feet when the cabin suddenly loses pressure. Yellow oxygen masks deploy from the ceiling, begging to be used. You start reaching for the lifeline but your child sitting next to you screams for help. What’s your next move?

If you follow the preflight safety instructions, you put on your own mask before assisting others, no questions asked. After all, it’s difficult to help others if you don’t help yourself first. This seems straightforward when we’re flying through the sky, but a recent report from T. Rowe Price reveals that it becomes cloudy when we’re on the ground, handling money, as an alarming number of parents are putting their own retirements at risk in order to fund their children’s college expenses.

Nine out of 10 parents believe their children will attend college, and since college typically arrives before retirement, the majority of parents feel like they should put money toward that first and save for retirement after. In fact, 49% of parents are willing to delay their own retirements to pay for their children’s education, while 74% feel guilty they won’t be able to provide more financial assistance. Overall, 63% are concerned about their children having enough financial resources to attend college, the most commonly cited concern besides health care costs.

Naturally, parents want to take care of their children first, but past experiences may be hindering the financial decision-making process. The report finds that 63% of parents believe they took on too much student debt themselves, and 79% want their children to worry less about money while in college than they did. Just over half of the 2,000 American parents in the study say they would take on at least $25,000 in debt to fund their children’s education, with 9% saying “whatever it takes.” Yet 66% of parents are still paying down their own student loans.

Finding a balance with your money is a crucial part of personal finance. Saving for retirement does not have to be mutually exclusive from saving for college.

'Largest financial market in the world with over $3 trillion in average daily turnover!'

Average daily turnover of
$3 trillion (U.S. dollar)

Dear Trader, welcome to the dynamic world of forex, where the markets never sleep (except on the weekends of course). Boasting of an average daily turnover of $3 trillion (U.S. dollar) if not more, the world of currencies is one of the largest, even bigger than the equity markets.

If you are wondering what forex trading is all about, then this section will aim to open your eyes to the new world of online trading.

'Five things that make forex trading different to stocks'

Forex is traded over-the-counter, meaning that trades are not centralized. Stocks on the other hand are traded at a regulated exchange where all trades are centralized

The Forex markets operate 24 hours a day and are closed on the weekends. On the other hand, stocks are traded during the U.S. or the respective country’s business hours. In most cases, stocks trade no more than eight hours a day

You need to have a considerable capital if you want to trade stocks, which puts off most from trading due to the big capital requirements. Forex on the other hand allows you to trade for as little as $100

Using leverage in forex you can magnify your trading profits significantly. Most often, you will find that the average leverage that is used in forex is about 1:100. This means that you can trade up to 100 times your capital in forex, which is not available with stocks

You can buy or sell a currency pair with ease in forex trading. When it comes to stocks, only long or buy positions on the equities are available and you can only sell the stocks that you own