Currency values rise (appreciate) and fall (depreciate) against each other due to a number of factors including economics and geopolitics. The common goal of forex traders is to profit from these changes in the value of one currency against another by actively speculating on which way forex prices are likely to turn in the future.
Unlike most financial markets, the OTC (over-the-counter) forex market has no physical location or central exchange and trades 24-hours a day through a global network of businesses, banks and individuals. This means that currency prices are constantly fluctuating in value against each other, offering multiple trading opportunities.
Kelli Ducloux, a long-time friend and subscriber for Financial Juneteenth, writes a tutorial on how to begin FOREX trading. Take a look at this, and consider purchasing her book. Also, do some additional research online to determine how to best utilize FOREX trading as part of your long-term investing strategy. The article is below:
by Kelli Ducloux
In this article, I am going to explain a FOREX trade in progress.
Look at the image below.
This is a screenshot of a trade that I was in on 1/11/15 at 15:18pm. It is for the currency pair EUR/USD, the European Euro to the US Dollar.
First, before I break down the image piece by piece, let me first say that this image shows that I am up $4.20, meaning I am positive $4.20. This is denoted by the blue 4.20 located at the top right side.
Now, across from the 4.20 on the far left side is where you see the currency pair denoted in white, capital letters EUR/USD.
Next to the currency pair is a red letter “S”. This “S” means that I have put in a “Sell” bet for this currency pair. A sell bet means that you think the currency is going to go down in price. (The opposite is a “Buy” bet.)
Below the currency pair is the date and time that I entered the bet or “trade”, followed by “@1.18590” which is the price point that I got into the trade.
Next to that is “Close: 1.18576”. This means that if I were to close the trade at that exact moment, then that would be the price point at which the close would happen.
Now let me stop a moment and explain what “pips” are and how you calculate your profit. I entered the trade at 1.18590 and the current price is 1.18576. The difference between these two price points is 0.00014. Now in the FOREX, we count from the decimal point going to the right four places. So in this case we only use the “1” and we say “The price has changed by 1 pip.” (Technically it’s 1.4 pips but the usual way of counting just disregards that 5th decimal numeral.) To calculate your profit, you multiply your the number of pips by the size of your trade, listed under the word “Amount”.
So, I entered the trade at 1.1859, hoping it would go down. It did; and so far it went down to 1.1857.
This is the essence of FOREX trading. You decide, based on specific information, whether you think the price of the currency pair is going to go up or down. You make your bet and then wait (and hope) that you were right. Simple.
Then, if you were right with your bet, all you have to do is decide how much money you want to profit. You might be happy with a $4.20 profit or you might think it’s going to go down much further and you want to wait for it to go down to $20.20.
Two things: #1 YOU get to decide how much is enough. #2 HOWEVER, you might be wrong and it might not ever make it to $20.20. It might actually start going in the reverse direction which means you will now start losing money.
This is the gamble you make. Do you take $4.20 and be happy with that money in your pocket (in your account) or do you REALLY feel good about your guess, that it will keep going down further, and wait for a greater profit while simultaneously knowing that it might not go down much further (or worse, turn and start going up).
I personally have closed trades because I was happy with as little as $1.70. However, I have also waited for a trade to hit $222 before I closed it out.
Now, let’s finish analyzing this image. The size of my bet was 30K which is denoted in red at the top middle portion of the image. Ten K (10K) is called a mini-lot, so my bet is 3 mini-lots. There are also micro lots which are 1K and then standard lots which are 100K. The lot size depends on two things: how much money you have in your account and how confident you are with your educated guess regarding the direction you think the price of the currency will move.
Now notice the white dotted line and a small white dot toward the bottom of the image. The dot shows the exact point where I opened my trade and the line just makes it easy to find the dot. At the end of the dotted line is 1.18590 written in a white box, which of course is the price point where I entered the trade.
Below the white box is a gray box with 1.18572 inside which is the amount that the price is trading at the time the screenshot was taken. So the gray line is current price.
At the very bottom of the page are the time-frames, beginning with “m1” and going to “W1”. Above them, the actual time is shown. The “m1” is highlighted yellow meaning that the chart we are looking at is a historical chart going back each minute from the current time. If you look above the “2” in the time 15:20, you will see a very small and skinny blue line. That is the exact place where the price point was at that time on the 1 minute chart when the screenshot was taken. The other options for looking at historical charts are: “m15” = 15 minutes, “m30” = a 30 minute chart, “H1” = a 1 hour historical chart, “D1” = a daily chart, and “W1” = a weekly historical chart.
The historical charts are the data resources that you would analyze to make your educated guess about whether you think the price of the currency pair is going to go up or go down. You need to look at several charts and then determine the trend. This is the foundation for making your decision.
For more information, please visit www.investingintheforex.com
Also check out my book Investing in the FOREX for Beginners with $300http://amzn.com/B00S83FK24
This book, currently listed for only $0.99 cents, walks you through the process of opening your account as well as how to get $50,000 of ‘monopoly money’ that you can use to practice trading the FOREX. Then when you have some practice under your belt, you can start trading with your own money.
Happy trading! 1.19.15