Trading in foreign currency is an exciting and potentially highly
profitable market which is open to just about anyone with the knowledge and the
capital. As with any form of trading, be it equity or FOREX, there is a great
deal of technical learning which you must do, in order to put yourself in the
best position to make money. With this in mind, here are some of the most
frequently asked questions about FOREX, with the answers that can help you to
feel more comfortable in the market.
What Impacts Currency Prices?
There are two ways that a country’s currency can become more valuable; either when there is an increase in demand for a particular currency,
brought on by any number of variables, and when the number of currency units
are reduced - such as when the Fed decides to increase interest rates, thus
reducing spending.
What Are Pips, Ticks and Points?
The difference between these three terms are in their numerical
value, although they are often used with similar meanings. A point is the
smallest possible change in price, represented on the lefts side of the decimal
point. A tick is the same as a pip, which represents the smallest possible
change to the right of the decimal point, crucial in FOREX
trading.
What is the Spread, and What is Spread Betting?
Many people wonder what is spread betting but first we need to understand the what
the spread is. The spread is the difference between the buy price and the sell
price, for example if USD/EUR is 1.302/04, the spread here will be 2 pips.
Spread betting is when traders bet on the price movement of a pair of
currencies, here you will be offered the buy (sell) and the ask (buy) price,
and then you will bet on the movement, either higher or lower, of the spread.
If the spread on a currency pair is narrow, it can provide a good opportunity
for spread betting.
How Can I Trade 24 Hours Per Day?
Unlike with equity trading, there is no central location for
FOREX trading as it is traded electronically. Given the high demand for
currencies, and the global nature of this type of trading, the market is open
from 5pm EST on Sunday, until 4pm EST on Friday, giving you plenty of time to
get involved.
What is Leveraging?
Leveraging is necessary in FOREX because of the low value on the
spread, the idea behind it is that the broker lends money to the client in
order to open a position. In basic terms leveraging is the action between the
exposure of your account versus the capital of it. For example, if you have a
margin requirement of $1,000, your broker may offer you a ratio of 100:1 which
means that you can open positions up to $100,000.
What is Arbitrage?
Arbitrage is a method used by some traders which involves buying
a security on one market whilst selling in another market at the same time, for
a higher price. For example, some traders may buy a stock on the FOREX, where
the price has not yet been amended for the changing rate of exchange. The price
of this stock is lower in value when compared with the local exchange, and the
trader can make a profit from such a situation.
FOREX can be profitable but you first must ensure that you know
exactly what you are doing.
© EconMatters.com All Rights Reserved | Facebook | Twitter | YouTube | Email Digest
