Basic principles of Forex
The Forex currency market is the largest financial market in the world. Currently, it conducts transactions for many billions of dollars daily and around the world and far exceeds the transaction volume of any other market including stock exchanges and Futures markets.
It is a non-centralized global market, which does not have a centralized operations center unlike others. It allows the participation of all types of investors, from large banks and financial companies to individual traders with a few hundred dollars to invest.
The principles are simple and do not require very deep knowledge in economic matters. This requires learning about the various approaches to analyzing the market, trading strategies, monetary management principles, risk management and reliable online broker. However, these issues will not be discussed in this article because they have been discussed in others. For this reason we will concentrate on the basic principles to operate in the currency market.
Every trader tries to predict if the value of a currency like the Euro for example, will rise or fall relative to another such as the US dollar. This is why transactions are carried out with currency pairs, the main ones being: EUR / USD, USD / JPY, GBP / USD and USD / CHF.
The concept of margin and leverage refers to the amount of money that the broker will “lend” to the operator to open a position in the market. If we talk about a leverage of 1: 100, it means that for every dollar that the trader invests, the broker will leverage it with 100 dollars.
- The Forex is really affected by various factors, all presenting unexpected movements in one direction or another, before which the trader must be properly prepared. One of the preparations is using smart online trading.
- The units with which transactions are carried out in the Forex are the lots and their subunits; the minilotes and the microlotes. A lot is equivalent to 100 000 units of the base currency in any pair with which it is operating. The minilotes are equivalent to 0.1 lots, that is to say 10 000 units of the base currency, while the microlotes are equivalent to 0.01 lots, that is, 1000 units of the base currency.