If you?ve heard anything whatsoever about the foreign exchange market, it?s probably that it is the biggest monetary market in the world, at least apropos daily trading volumes. To be absolutely certain, the forex market is unique in several respects. The volumes are, indeed, enormous, implying that liquidity is ever present. It also operates fulltime six days every week, giving traders access to the market any time they require it.
Few trading limitations exist ? no daily trading limits down or up, no limitations on position sizes, and no needs on selling a currency pair short.
Selling a currency pair short means you?re expecting the price to decline. Because of the way currencies are quoted and because currency rates move up and back down all of the time, going short is as common as being long.
The majority of the action happens in the major currency pairs, which pit the U.S. Dollar (BUCKS) against the currencies of the Eurozone (the EU countries that have adopted the EU Dollar as their currency), Japan, Great Britain, and Switzerland. There?s also masses of trading possibilities in the minor pairs, which see the U.S. Dollar traded against the Canadian, Australian, and New Zealand greenbacks. On top of that, there?s cross-currency trading, which immediately pits two non-USD currencies against each other, eg the Swiss franc against the Japanese yen. Altogether, there are anywhere from 15 to 20 different currency pairs, dependent on which forex brokerage you deal with.
Most individual traders trade currencies via the Net thru an agent. Online FOREX trading is generally done on a margin basis, which allows individual traders to trade in bigger amounts by taking advantage of the amount of margin on deposit.
The leverage, or margin trading ratios, can be really high, occasionally as much as 200:1 or larger, meaning a margin deposit of $1,000 could control a position size of $200,000. But trading on margin carries its own rules and necessities and is the background against which all your trading will happen. Leverage is a two-edged blade, intensifying gains and losses equally, which makes risk management the key to any successful trading system.
Before you ever begin to trade, in any market, ensure you?re only risking money that you can stand losing, what?s commonly called risk capital. Risk administration is the key to any successful trading plan. Without a risk-aware strategy, margin trading can be an intensely transitive endeavour. With a proper risk plan ready you stand a much better possibility of surviving losing trades and making winning ones.
Felix Richman is an FX trader and reporter on subjects like forex robots, and popular FX software packages like FAP Turbo.
Source: http://i-care-finance.com/2012/02/16/currency-pairs-as-the-trading-tool/
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