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Two key factors involved in maneuvering around the Forex market involves being able to read the quotations (price quotes) and interpret them correctly, as well as knowing and understanding the terminologies (jargon). Again, this is another part of the education process that one should be engaged in prior to doing any trading.

Reading the Quotes

Traditionally, when a price for a currency is quoted, it is done in relation to another, thus the value of one gets reflected through the other currency’s value. As an example, if you are trying to determine the value between the United States Dollar (herein referred to as USD) versus the Japanese Yen, the symbols of the quote would appear as follows:

USD/JPY = 119.50

This is what is referred to as a currency pair wherein the currency to the left of the slash is called the base currency, and the currency to the right of the slash is called the quote or the counter currency. In this case, the USD is a single unit meaning $1 and the Yen is what value is what one USD unit equates to in that country’s currency. In this instance, one USD unit equals 119.50 Japanese units.

Direct Quotes Compared to Indirect Quotes

Currency prices can be quoted either directly or indirectly. Direct quotes are currency pairs wherein the domestic currency is listed as the base currency, while indirect quotes is where the domestic currency takes on the role of quoted or counter currency. So if the Canadian Dollar (CAD) were the domestic currency and the USD was the counter currency, the direct quote would appear as CAD/USD, and the indirect quote would read USD/CAD.

Customarily, the direct quote will vary the foreign monetary unit and the domestic (or quoted) currency is fixed as one unit. Conversely, with the indirect quote, the domestic currency is the one that varies while the foreign currency is that one that is fixed as a single unit. For example, if the direct quote is listed as 0.85 CAD/USD, it means that $1 Canadian will buy $0.85 US. The indirect quote would read 1.18 USD/CAD meaning that $1 US will purchase $0.85 Canadian.

Typically, most currencies are traded against the USD and therefore the dollar is usually listed as the base (or domestic) currency, and therefore becomes a direct quote. However, not all currencies list the USD as the base currency. Usually, the currencies that have historical ties with the United Kingdom — namely the Australian Dollar and the New Zealand Dollar — are usually listed as the base currency against the USD. Despite the fact that the Euro is a relative newcomer to the Forex market, it is listed as the base currency against the USD more often than not.

Additionally, currency quotes generally extend out four digits to the right of the decimal point with the exception of the Japanese Yen (JPY). It is quoted with only two digits listed to the right of the decimal point.

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At some point in time, every person remotely interested in making money by investing has heard of currency exchange markets or the Forex market. Lots of newcomers to the industry have wondered about the mechanics involved in currency trading or more specifically, just how the Forex market functions. If you have any aspirations of being successful in the Forex market or trading in currencies, then it’s a given that you need to know what Forex is and how to execute trades in that market.

One of the keys to being successful at it is to try and learn as much as you can from the experts. This is where you can benefit from the Forex tutorials that are offered online, as well as listening to the experts that developed them. Not only will you learn how the Forex market operates, but you’ll gain the knowledge that you need in order to execute a Forex trade successfully and profitably. You’ll also learn about market indicators and what they mean, economic indicators that you have to be aware of, and all the options and strategies that will benefit you as a trader in the Forex market.

This is especially true if you’re a complete newcomer to the game. It’s essential to learn your way around the industry before you ever open up your wallet and part with any of your hard-earned cash. Most of the better online Forex trading websites offer you a variety of tutorials so that you can get up to speed fairly quickly. The nice thing about these is that it isn’t like being in school where you study then take an exam, study then take another exam, study … you know. With the online tutorials you always work at your own pace and never jump into the trading market until you are completely ready.

The most important thing for you to accomplish is to not only educate yourself well enough to start trading, but to educate yourself enough to start trading successfully. The more you learn, the more you will understand the market and how it operates. The more you understand about the market and its system of operating, the sooner you will make a successful trade — and hopefully it’s only the first of many.

Finding a Forex trading tutorial is not difficult. A simple Google search or using info.com will result in tons of options for this. There are some that will try to convince you that the ones you pay for are better than the free ones. DON’T BELIEVE IT! The free ones are just as good, you just need to set up a trading account for some of the better ones, but that was your goal anyway. You just needed to educate yourself a little first.

The secret to any kind of successful endeavor in the Forex market is getting an education in it first. It’s the same old story that you have heard all along — knowledge is power — and this case, the more knowledge you possess, the more successful you will be in your trading endeavors.

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It’s a known fact that the individual investor or trader achieves greater leverage in the Forex market versus other trading venues. An example has been made of choosing between investing in shares of a stock or in the Forex futures to illustrate how leverage works. You could invest $1,000 in only 10 shares of a particular stock, or you could take that same $1,000 and invest it in five different futures contracts of 100 shares each, therefore enabling you to be controlling 500 shares overall compared to only with stocks. This example is a moot point about which one to invest in, so why ask?

Excessive leverage can only result in two outcomes for the investor — excessive gain or excessive loss. Excessive leverage can enlarge your losses in as a great a magnitude as the way in which it can enlarge those profits, so the investor needs to be very careful in any endeavors where leverage gets too high. Just remember, the greater the leverage that you apply with a capital investment, the greater the risk you take of losing it.

Risk is not always associated with leverage that is margin-based, but it will influence it if the investor does not take some precautions. Here’s an example using the following chart to illustrate a key point.

Trader A Trader B
Trading Capital $10,000 $10,000
Real Leverage Used 50 times 5 times
Total Value of Transaction $500,000 $50,000
In the Case of a 100-Pip Loss -$4,150 -$415
% Loss of Trading Capital 41.5% 4.15%
% of Trading Capital Remaining 58.5% 95.8%

Figure 1: All figures in U.S. dollars

Both Trader A and B have $10,000 and execute a broker trade requiring a that they deposit 1%. After looking at the USD/JPY they both figure that it will top at around 120 and then start to decrease in value, so they short it at a price of 120. Trader A then applies a leverage factor of 50:1 (equating to $500,000 on his $10,000 investment), Because the USD/JPY settles at 120, one pip (point) for a standard lot equals approximately $8.30 USD, so the pip for five of these lots would be $41.50 USD. To further the point, let’s say that the USD/JPY hits 121. Trader A has just lost 100 pips on the trade which means that he is out $4,150 USD.

On the other hand, Trader B opts to be more cautious and applies only a 5:1 leverage factor to his trade. Even though the USD/JPY hits 121, and Trader B loses 100 pips just like Trader A did, he has only lost $415 or 10% of what Trader A encountered in the loss. Does that illustrate the point about being careful with applying leverage?

The bottom line is that excessive leverage can kill your gains very quickly. So if you apply a smaller leverage factor, you will be able to give your trades more breathing room, so to speak, by employing a wider stop range. This in turn will result in avoiding in the risk of using (and losing) too much of your capital investment.

Justin Stewart has used software to automatically trade the forex market allowing him to earn a living without lifting a finger, even while he sleeps. You can use the same forex software to get the same results here: http://www.SleepingForexRiches.com

You’ve done all the research, invested a lot of time in due diligence, and have even decided on a broker to open a Forex account with. So you’re obviously ready to start trading, right? Well, there’s one final step you should take before you embark on your investment journey. In addition to setting up your account, you may want to give a little thought to brushing up on leverage and knowing about commissions and fees.

Opening Your Brokerage Account in the Forex Market
There are a few similarities involved when you trade in the equities market or the Forex market, but the basic similarity is that if you are going to execute trades in either one of them, you are going to be required to set up an account with a broker. And just like with the equity market, the services that are provided with a Forex account will be as different as the brokers that want your business.

It is very important that you choose the right broker. Aside from factors like how well established they are in the industry and what their track record with current and former clients is like, you need to consider the leverage factor as well as commissions and fees.

Leverage
When you are using very little capital of your own in order to control large amounts of it, this is known as leveraging. The higher the ratio of leverage that you use, the greater the risk factors that you are taking. Just remember that leverage is a very powerful tool and the losses can be equally as great as the gains. Usually, leverage factors differ according to the type that an individual opens.

Accounts will use leverage factors that use a 50:1 ratio, while others will use as much as 250:1 ratio. In an account where the factor is 50:1, you control up to $50 for every $1 in your account. So if you have $500 in your account, your broker will loan you up to $25,000 to invest in the market. This in turn makes your margin, or the amount of money you need to have in the account in order to trade a certain amount, considerably lower. When you’re dealing in equities, margins are normally 50%. On the other hand, a leverage factor of 50:1 is only 2%.

Commissions and Fees
One of the major benefits of trading in the Forex market versus the stock market is that your trade is normally done on a commission-free basis. Unlike an equity account where you always pay the broker a fee based on a fixed percentage of the transaction, you won’t encounter this with a Forex account. Rather than dealing with a “middleman”, i.e. stock broker, you are dealing directly with the “market makers” and do not need to use another party to execute your trades.

Although this sounds like a fantasy when it comes to investing, rest assured that those market makers earn their fair share of income for doing their jobs. It just doesn’t come out of your pocket like that of a commission-driven stock broker. Remember the concepts of the ask price and bid price? When a trade is executed, the market makers actually capture the spread between the two of these prices. For example, if the bid/ask price is 1.5200/50, the market maker will capture that difference, which is 50 points.

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When people look for an investment, they often look to the stock markets. People try to play the stock markets to take their investment and gain money. What many people do not realize, however, is that stock market investing is just one form of market investing. More and more people are being turned onto forex market investing (also known as foreign exchange market investing). This investing is actually investments based on the currency of the world. People buy, sell, and trade currency in order to (hopefully) receive the maximum return on their investment. The forex market is incredibly complex to understand and to work properly. Some people think that stock market trading is difficult; forex trading ism ore difficult, simple because of the speed. The forex market sees over $3 trillion move daily. That’s right: the markets, open 24 hours a day on week days, see over $3 trillion bought, sold, or traded in a single day. Because of the incredibly amount of money and complexity that is involved in forex market trading, there are a few tips to consider before jumping into forex market investing.

Be Educated

One of the most important things that someone considering forex investing can do is to become as educated as possible on the subject. Not only does someone in the forex market need to know exactly how the system works (in order to gain the best returns on their investment), but they should know how to read the market in order to make sure they are moving their investment in the best way possible. Many people who jump into the forex market with no education whatsoever lose money; they hand their money to a broker to trade, but are unsure of the best ways to actually move that money. Because they do not understand the best way to do it, they have a hard time excelling in the forex market and often pull out after losing money.

Be Technical

A lot of people in the forex market tend to have a system that helps them to read the market and understand what to do with their forex investment. It is important to research how others try to determine what to do with their investments in order to figure out the best ways to move your own. By understanding how to read the market and learning how to be technical about the situation, you are putting yourself in a better position to increase your investments and the returns on those investments.

Be Patient

All in all, it is important to be patient with the forex market. The market is fast; it is important to realize that not everyone gains on every trade and transaction. Just like the stock market, the forex market has winners and losers. Getting educated and being technical can help you reduce the chances of losing money, that as always, there is no guarantee.

Justin Stewart has used software to automatically trade the forex market allowing him to earn a living without lifting a finger, even while he sleeps. You can use the same forex software to get the same results here: http://www.SleepingForexRiches.com