The following is a guest post written by Sam Rogers.
If you are interested in getting started with Forex trading, here are some basics you should know before getting started.
First, Forex stands for Foreign Exchange Market, which is where currencies are traded. All currencies traded on the market are traded in pairs, for example a US Dollar for a Japanese Yen.
In currency pairs, the base currency is the first currency, and the quote currency is the second currency. So, in the above example, USD would be the base currency, and the Yen the quote currency. For example, USD/JPY = 77.50 would mean that one USD would buy 77.5 Japanese Yen.
The minimum rate at which currencies fluctuate is called a pip or point – which is 0.01 for the JPY, and 0.0001 for all other currencies.
How To Buy or Sell
When you go to buy or sell currency pairs, you will a bid and ask price.
The bid price is the rate at which you can sell the base currency and buy the quote currency (in the example above it would be selling the USD and buying the JPY).
The ask price (or offer price) is the rate at which you can buy the base currency and sell the quote currency.
The spread is the difference between these prices.
You may see a currency rate as well, which is the value of one currency expressed in terms of the other currency (such as the exchange rate). This rate depends on a variety of factors, including supply and demand or operations by the government or central bank.
Finally, you have a lot size. In most currency pairs, 1 lot is 100,000 units of a base currency.
Practice Makes Perfect
The terms of Forex trading are very different from standard trading, and as such, you should look for a platform, such as the Alpari Metatrader Platform, which allows you to practice trading all of the features of Forex without using real money.
By doing this, you can hone your strategies safely, and then proceed to real trading once you are comfortable. This can save you for losing big from the start.
photo credit: flickr – bradipo