I'll never forget the day I first heard the word, forex. I am a confessed infomercial junkie and often spend my late nights and Sunday mornings watching 30-minute infomercials to see which latest, greatest gadget I need in my home next or which new money making opportunity will fill my pockets to overflowing. One particular Sunday morning was no different except that I saw what looked like the most exciting way to invest my money...EVER! That was nearly 7 years ago...
Since then, I've spent nearly $15,000 on courses and lost nearly $35,000 in the market. I know what you're thinking now...if I want to FAIL, I'll listen to this person. Perhaps I'd better find someone who has actually MADE money in the market and read what THEY have to say! But before you do that, I hope you'll read on just a bit farther.
You see, I find that you tend to learn more from your MISTAKES than your successes and I've learned $50,000 in mistakes. I'd like to say that I'm like an Edison...I've found 50,000 ways to fail! Now, I admit that I'm no Edison, but I HAVE learned something over the past 7 years...and I'd like to show you how to avoid the mistakes I've made and finally, how to SUCCEED in this market. Oh yes, did I mention that I have finally figured it out? I should hope so, after 7 years and $50,000!!
My passion is showing people who might not know ANYTHING about investing in ANY market, how easy it can be to participate in the forex. (WITHOUT spending 7 years and $50,000 to find out!)
So, we'll start off with some BASIC terminology and in future articles, I'll talk about different ways of participating in this exciting market.
Forex Terms
FOREX or Off Exchange Foreign Currency Market: The world's LARGEST financial market where nearly 2 TRILLION DOLLARS is exchanged daily. There is no physical central exchange...it's completely virtual and global. The forex is open 24 hours/day, 5 days/week (generally 5:00pm Eastern on Sundays through 5:00pm Eastern on Fridays).
FCM (Futures Commission Merchant) or forex broker: An intermediary between the trader and liquidity providers. Forex brokers charge a "spread" for handling the trading transaction. Some notable FCMs are: FXCM, FXDD, GFT, FXSol, to name a few.
Spread: The difference between the BID price (price you pay when you are SELLING a currency pair) and the ASK price (price you pay when you are BUYING a currency pair)...usually between 2 and 10 price interest points (pips - see below), depending on market conditions and the broker used.
NOTE: If your eyes are starting to glaze over and your head is swimming, don't worry. This market is actually one of the EASIEST to understand. It is important, however, to have a mentor to guide you through the ins and outs.
Currency pair: Currencies are bought (and sold) in pairs. For example, the Euro-US Dollar pair (symbol: eurusd). The first currency listed is the BASE currency (in this example, the Euro) and the second currency listed is the CROSS currency (in this example, the US Dollar).
Rate, or Price: The rate is a representation of the exchange rate between currencies, which fluctuates, sometimes dramatically, according to market conditions and world financial news. Here's an easy way to think about it: If the eurusd rate is 1.2695, it means that 1 Euro is worth 1.2695 US Dollars.
Lot: A lot is just a group of currencies. When you trade, you buy (or sell) a lot or a partial lot. There are MICRO lots, MINI lots and STANDARD lots. For example, if you trade a 1k lot (MICRO lot), you are trading 1k, or 1000, of the base currency. If you are trading a 10k lot (MINI lot), you are trading 10k, or 10,000 of the base currency. A STANDARD lot then is 100,000 of the base currency.
pip (Price Interest Point): The smallest possible rate movement represented by the LAST DIGIT after the decimal. For example, if the rate of the eurusd is 1.2695 and the rate changes to 1.2688, the price has fallen 7 pips. A pip can be worth about 10 cents for a MICRO lot up to about $10 for a STANDARD lot.
Going SHORT: SELLING a currency pair, meaning that you expect the rate to go down.
Going LONG: BUYING a currency pair, meaning that you expect the rate to go up.
Of course, this is not a comprehensive list of terms, but it is a good basic foundation. If I listed all the terms, your brain would start overheating and the smoke would be coming out your ears and someone might be tempted to throw water on your head. Let me assure you that once you get through the basics, you're halfway home.
In future articles, I will be talking about different methods of trading currencies because you'll need to decide what works best for YOUR personal preferences. In the meantime, if you have any specific questions, I encourage you to write to me at carolenoxon@gmail.com and I'll be happy to assist you any way I can.
Until next time...
Carole Noxon, the Forex Mom
Carole Noxon is a forex trader/trainer who conducts regular free web seminars for people interested in learning more about the foreign currency market.
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