PRINCIPLES OF THE FOREX



For you, as investor at the Forex exchange,

It is very important to know the difference between the Forex market and the operations at the regular commodity exchanges. Exchange traders at the Forex use “guarantee of the fulfillment” or “margin” to control exchange contracts, they use leverage and the mechanism of the financial settlement, market orders, similar to those used at the classic commodity markets. As concerns liquidity at such market, it seems that classic commodity markets are rather limited, because informational flow stops, when the exchange is closed at the end of each day (same as at the classic stock exchange), which interrupts the continuousness of your evaluating and your contact with the market. This fact is the fear of many traders. For example if the data from England and Japan are important while the American foreign exchange is closed the trader will miss the information needed to the successful next day start.
The Forex trading is done 24 hours a day and never stops. In all time zones in whatever world trade centre (London, New York, Tokio, Hong Kong, Sydney etc.) the traders are prepared to give you a possibility to start trade in both directions (buy, sell). As mentioned above, the daily market turnover is from 1 to 1.5 billions dollars and this fact gives this market virtually unlimited liquidity. For this huge turnover and constant trading power the Forex market doesn’t have comparison anywhere with regard to its dynamics and expanse.

Thanks to what is the market moving?

Between the main factors influencing exchange rates belongs the balance of reciprocal payments, economic conditions, and predictions based on the technical analysis charts as well as political and psychological factors. The capital movement between countries can be taken as the main factor determining the current market situation. Except this, factors such as the inflation and bank rates can significantly influence exchange rates too. Simultaneously important factor is that always particular states influence their own currencies, metals, Gold, Silver. There are two ways how states can supervise the market with currencies, metals, Gold and Silver. The first one is just to control and the second is so called intervention. The currency revisal hinders the inhabitants to do whatever what could have negative influence on exchange rates (for example international transfer of funds). The intervention means the change of bank rates which makes the currencies more or less attractive for the foreigners. The intervention is done by selling or buying the currency with the aim to increase or lower its price at the market.
All the above mentioned factors can lead to immediate and oftentimes dramatic price changes of particular currencies, metals, Gold, Silver at the market if some unexpected and significant events happen. This is the main reason of the price changes together with the fact, that sometimes the expectations of some economic changes itself can apply much bigger influence, than changes itself. The big financial funds activities influence market significantly too. In spite of all of them can make price level movements themselves, they are at least very well informed  about all the fundamental data in the exchange rate changes for leading currencies. When the chart determining some exchange rates fluctuations touches the nodal point, the market behavior becomes technically predictable, and thus the managers of main financial funds will react in predictable way, which usually means the same or similar way of their conduct. As the result is particular huge increase or decrease of prices and large financial volumes are invested in the same positions.
Professional investors nowadays significantly increase their Forex market coverage. Together with constantly increasing number of individual private investors it makes from the Forex market dynamically developing market.

Trading on margin

Trading at the currency exchanges Forex – currencies, metals, Gold, Silver is usually realized on the basis of the margin trading. Simultaneously is required relatively small deposit to start much bigger positions at the market. If you want to trade $1 million you will be asked to deposit $10,000 to the broker’s account. The result of this margin deposit can be up to 100 times bigger investor’s profit (the principle of leverage). The trading on margin clearly requires disciplined approach.

Trades with currencies and currencies´ prices

To trade is necessary to have two currencies (cross rate), where in one of them you will be in the long position (buy) and in the second in short (sell). You speculate in the hopes that the value of one currency will increase with regard to the relative weakening of the second currency. The currency trading is based on the principle of the price changes movement. You can open long and short positions (it means buying or selling your main currencies). With closing the position there is done the opposite trade. The loss or profit will appear in the difference between the quantity for which the currency has been evaluated and chosen in these two transactions. Your broker will automatically exchange your profits or losses to your basic currency usually USD.
There exist significant opportunities and risks included for investors at the Forex markets. Aggressive traders can experience daily profits/losses in the range of tens percents. This requires assertive stop loss rules in the positions which move against you.
Fortunately with the Forex trading there are not any daily limits and any constraints regarding the trading hours. It means, there will always be the possibility to respond to the main currency markets movements. Corresponding to this there is lower risk to be caught without the possibility of closing some of the positions.
For speculative trading we always recommend to place protective stop loss. Investors at the Forex can easily place and change their orders, including up to three possible market orders for each trade during the monitoring the development of the market in the real time. These possible orders are interims of two directed orders placed on the basis “if the price reaches the level, do this and this....” if the primarily order is fulfilled. These two directed orders are themselves related to the GTC orders, which allows you to define both-profit and stop loss order along the position, if the primarily order is fulfilled. If is fulfilled one of the orders, the second one will be automatically deleted.

Trading spread but no charges

When trading at the currency exchange Forex the trading spread is shown to investors, which offers buying and selling trade level. If the investor accepts the offered price of the particular currency and receives the confirmation, the trade is executed. It is not needed to call the exchange floor.
Trading spread for main cross-rates is typically 3-4 points according to the market conditions; it means USD / JPY 119.40-44. This would mean the sale of USD against JPY for 119.40 and buying for 119.44. There are not any other charges, which would be necessary to pay.
When trading at the currency exchange Forex the momentary price is shown to investors (spot).
Different currencies pay different interests. This is one of the main motive forces on the background of the Forex trends. It is attractive to be the buyer of the currency, which pays higher interests and simultaneously to be in the short position of the currency, which has got lower interest rates. But it is clear, that the currencies with higher interest rate will be more powerful. For example the reason why one interest rate is higher than another can be vigorous inflation, and this can undermine the confidence in currencies much more, than the expected advantages leading from the higher interest rate.
Except the interest rate the currency rate development is influenced by winder range of other fundamental factors, but technical factors too, which we mentioned above. Momentary exchange rates for currencies is always the reflection of the real ask and bid, current situation, which influences the currencies, but oftentimes the expectations of the future possible events too.

The principle of the trading on currencies, metals, Gold, Silver is clear and easy. Now make at the Forex exchange your trading operation, it means buy or sell currency, cross-rate, in the future realize the opposite operation, if the currency exchange rate is developing in the supposed direction. By the Stop loss always secure your position in the case the price will develop in the unwanted direction. You have to add the strict discipline, trading plan and money management.

Forex spreads for currencies EUR / USD, metals, Gold, Silver and other instruments


     
                                          

 


   

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