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Thread: 100 tidbits on FOREX

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    Default 100 tidbits on FOREX

    So on my quest to reach 100 posts I will be adding 100 tidbits that should help everyone, especially beginners, how to trade. It will also range in difficulty from the most basic (post #1) to the most difficult (post #100). Depending on the kind of trader your are... you know where to look.

    *Takes deep breath*

    Ok so since this is the 1st post, I'll begin with this:

    1) The Foreign Exchange market, also referred to as the "FOREX" or "Forex" or "FX" is the largest financial market in the world, with a volume of over $2 trillion a day. Now compare that to the New York Stock Exchange whose daily volume is only $25 billion.
    Last edited by prof.econ; 06-26-2008 at 01:29 PM.

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    Default Tidbit #2

    2) So what is traded on the Foreign Exchange?
    - Money

    Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

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    Default Tidbit #3

    3) But where is my money?

    Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.

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    Default Tidbit #4

    4) In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies. Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. Until the late 1990s, only the big guys could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally intended to be used by bankers and large institutions.

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    Default Tidbit #5

    5) All you need to get started is a computer, a high-speed Internet connection, and some money.

    So what are the major currencies?

    Symbol Country Currency Nickname
    USD United States Dollar Buck
    EUR Euro members Euro Fiber
    JPY Japan Yen Yen
    GBP Great Britain Pound Cable
    CHF Switzerland Franc Swissy
    CAD Canada Dollar Loonie
    AUD Australia Dollar Aussie
    NZD New Zealand Dollar Kiwi

    Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.

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    Default Tidbit #6

    6) The FX market is unique within the world markets. Its like a Super Wal-Mart where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend.

    *Just a note: More on "gaps" later*

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    Default Tidbit #7

    7) Important forex hours... a lot of the action takes place near the opening and closing of a market, but watch out for that increase in volatility.

    Time Zone New York GMT
    Tokyo Open 7:00 pm 0:00
    Tokyo Close 4:00 am 9:00
    London Open 3:00 am 8:00
    London Close 12:00 pm 17:00
    New York Open 8:00 am 13:00
    New York Close 5:00 pm 22:00

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    Default Tidbit #8

    8) There are many benefits and advantages to trading Forex. No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.

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    Default

    10 titbits on making 100 posts in a month: #1 Reduplicate FAQ's from the website, #2 talk about commonplace truisms, #3 Say you're doing this for everyone's good... Your #7 tidbit was really helpfull, though, thank you. Looking forward to the continuation
    Last edited by FXJUNKIE; 06-27-2008 at 07:32 AM. Reason: typo error

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    Default Tidbit #9

    9) No fixed lot sizes

    In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250 (although I'll explain later why a $250 account is a bad idea).

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    Default Tidbit #10

    10) Low transaction costs

    The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later.

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    Default Tidbit #11

    11) Open 24 hours!

    There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night.

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    Default Tidbit #12

    12) The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.

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    Default Tidbit #13

    13) In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

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    Default Tidbit #14

    14) Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).

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