Foreign Exchange Trading: A Beginners Guide

foreign exchange

The short form for foreign exchange is forex which in actual is the currencies involved in foreign exchange trading. Forex is the act of converting one country’s currency in exchange of another country’s currency for trade purpose.  Trade is global thus it is necessary to transact with other countries with their own currencies. This trade has been taken up by various financial institutions in order to cater the need of their clients but at the same time the internet has provided a speculative environment for trading one currency against another.

What are Orders in Foreign Exchange Trading?

The foreign exchange market provides orders of different kind for trading.  Some of the main orders found on foreign exchange trading stations are as follows:

‘Market Orders’: Buy/sell orders in which a brokerage firm is supposed to order at the best ‘current price’ available. It is also known as ‘at the market’.

‘Entry orders’: Is a request by a client to brokerage to buy and sell specified amounts of  particular currency pairs at a specified rates. Once the request price is hit the order is filled.

‘Stop loss orders’: It is an order meant to close a position when a specific price is reached.  It limits the trader’s loss on a particular position. It is the most recommended order for traders to limit loss.

‘Take profit orders’: It is an order to close a particular position when a predetermined ‘profit exit price’ is reached. It enables to lock in profit of a position. When the price exceeds the predefined profit exit price it becomes a market order thus the position is closed.

‘Good Until Cancelled orders’ (GTC): Most trading orders are GTCs, that is orders will remain valid until cancelled, no matter what the trading session is. The trader needs to inform in case of cancellation of an order before its expiry.

What is a  Margin or Leverage?

Margin: It is the volume of equity in a trading account that should be maintained to keep a position open. It allows a customer to open positions which is higher in terms of value compared to the amount of capital they have invested in their accounts. It acts as a safe deposit by the investor against trading losses.

Margin account trading is also known as a leverage basis trading. Generally, in online trading a trader should deposit more funds before the margin call or the position is closed. Margin or leverage is a sword with double edges. Proper usage enables the customer’s fund to generate quicker returns and in turn increase an investment’s potential return.

Most trading firms offer customized margin or leverage which help the traders to choose the leverage ratio the y are comfortable with.

Like any other trading instrument a trader should understand the various terminologies and basis of the foreign exchange trading before he or she starts trading. Being one of the most actively trading market, it is yet to be the most well known market in the world.

 

 

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