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Foreign exchange market is undoubtedly the biggest financial market in the world. With a daily turnover of 3 trillion USD the global Forex market is bigger than all the stock markets in the world. The highest possible leverage, maximum potential of earning and round the clock trading hours have made the Forex market a popular investment avenue all over the world. But in reality it is mainly the banks, funds and financial institution, which make significant investment in the Forex market and the majority of the retail investors invest through these institutions. As a Forex investor you should have a comprehensive understanding of how the Forex market operates and hence we are providing you an overview of Forex trading basics.
When you are trading at the Forex market you are always trading on a combination of two currencies. There are so many currency pairs that are traded at the Global Forex market but there are only seven currencies that are most widely traded including USD, EUR, GBP, AUD, CAD, JPY and CHF. In a Forex trade you are always buying and selling a currency in relation to the other. That means while trading you are speculating one currency strengthening in respect to the other currency in the Forex market. Generally it is the higher priced currency that is considered to be the base currency of the trade and the value of the other currency of the pair is compared to the base currency. For example when you are trading USD and SGD for a fixed amount of USD 1,000,000, you will be investing USD 1,000,000 and when closing the position it will be sold as against USD 1,000,000. The profit and loss will be calculated on the rate of SGD that is the price currency as against the USD and it will be debited and credit to your account. Then that price currency will can be transformed into your base currency by the bank if you need that.
In Forex trading you are always offered a quote of spread. That means you are offered by your broker a buying price and selling price for a specific currency pair. If you accept that spread the trade is executed by the broker and you need not go to the exchange trading floor for the trading. This system lets you trade at the real time streaming costs and does not include any commission or transaction cost or exchange fees. This is one advantage that lets you trade at the Forex market with minimum delay and avoid other costs that are common in stock market investments.
Generally in Forex trading a spot price is offered to the traders and if the trader takes no further steps the position will be automatically closed after two business days. This is supervised the regulatory authorities and ensures the safety and security of the Forex traders. Of course as an investor you can swap your trade to a subsequent date that can be done on a daily basis or for longer period of time.
Forex trading is normally done on the margin trading principles. That means you can trade for a bigger amount with a relatively smaller deposit. The high leverage of the Forex market allows you to trade in 100 times more than your deposit. That means with a deposit of only US$ 10000 you can trade in one million US$. With such high leverage margin trading your profit and loss on the total deposit can be as high as 100%. So, it is quite evident that the Forex market is a highly potential as well as a risky market.
As a Forex investor you can make fortune at the Forex market or you can suffer huge losses. But a sound knowledge of the factors that determine the ups and downs at the Forex market can get brighten your chance of making good profit at the Forex trading. The up to date information about the Forex market and an efficient automated Forex trading system can help you to get more profit at the Forex market for sure. So if you want to make good profit from Forex trading, you need to select a credible broker, have trustworthy software and have in depth understanding of the factors that control the global Forex market.
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