The currency exchange market is the largest market in the world with transactions worth $1.5 trillion taking place in a single day. Forex trading is the selling of a currency and simultaneously buying another currency. Trading is done in currency pairs such as Euro to the dollar or dollar to the yen. The most frequently traded currencies in the foreign exchange market are the US Dollar, the British pound, the Japanese Yen and the Euro.
Unlike stocks and futures, forex trading is not conducted in a centralized exchange. It is considered as an over-the-counter (OTC) market as transactions are executed between two parties telephonically or via the electronic network. The forex market is frequently referred to as the inter-bank market because banks dominate it. However, in recent years the number of other market participants such as multinational corporations, money managers, and speculators has increased significantly, particularly so with the advent of the internet permitting trading on a 24 hour basis.
Common terms used in forex trading:
1. Bid: It is the price at which a buyer has offered to buy the currency.
2. Ask: It is the price at which a seller has offered to sell the currency.
3. Spread: It is the difference between the bid price and the ask price.
4. Intraday: Refers to all positions that are opened and closed at anytime during a normal trading day.
5. Overnight position: Refers to all positions that are active at the end of the trading day and are carried over to the next day for trading.
6. Long position: In a long position, the trader buys a currency at a particular price with the intention of selling for a higher price at a later date.
7. Short position: In a short position, the trader sells a currency anticipating that it will depreciate.
8. Limit order: A limit order is an order with restrictions in regard to the maximum price to be paid or the minimum price to be received.
9. Stop loss order: In a stop loss, an open position is automatically liquidated at a specified price. This strategy is used to limit losses
Unlike many major equities and futures markets, the structure of the FX market is highly decentralized. This means that there is no central location where trades occur. The New York Stock Exchange, for example, is a totally centralized exchange. All orders pertaining to the purchase or sale of a stock listed on the NYSE are routed to the same dealer and pass through the hands of a single clearing firm. This structure requires buyers and sellers to meet at the NYSE in order to trade a stock that is listed on this exchange. It is for this reason that there is one universally quoted price for a stock at any given time.
In the FX market there are multiple dealers whose business is to unite buyers and sellers. Each dealer has the ability and the authority to execute trades independently of each other. This structure is inherently competitive as traders are faced with a choice between a variety of firms with an equal ability to execute their trades. The firm that offers the best services and execution will capitalize on this market efficiency by attracting the most traders. In the equities markets, the execution of trades is monopolized and there is no incentive for a clearing firm to offer competitive prices, to innovate, or to improve the quality of their service
Using Stop-Loss Orders to Manage Risk
Due to the importance of money management to long-term successful trading, the use of a stop-loss order is imperative for any trader who wishes to succeed in the currency market. The stop-loss order allows traders to specify the maximum loss they are willing to accept on any given trade. If the market reaches the rate the trader specifies in his/her stop-loss order, then the trade will be closed immediately. As a result, the use of stop-loss orders allows you to quantify your risk every time you enter a trade.
When you are ready to get serious and take control of your financial status - give us a call - whether you are looking to earn a living from home or invest in the forex market.
Ready to trade your own forex account in about 15 minutes per week? No reading any forex charts or forex news!
http://freedomrocks.us
Sincerely,
Matt Ellsworth
MJE Sales, LLC
315-828-6258 (EST)
skype: mjesales
http://www.mjesales.com
http://www.freedomrocks.us - Forex Software and More!
matt@freedomrocks.us
See the original post:
Forex Market
Filed under: 