Learn Forex and Currency Futures trading with currency futures and Forex newsletters, videos, strategies, tips and auto trading accounts.
Home | Risk Warning | Tell a Friend | Contact Us | Search | Member Area

 Take a Tour!
 Justin's Daily
 Subscribe Now!
 Chart Indicators
 Webinars
 Video Tutorials
 Articles
 Discussion Forum
 About Us
 Member Reviews
 Member Feedback
 Our Guarantee
 Privacy Policy
 Site Map
 Tell a Friend
 Terms of Use
 Contact Us
Previous Month December 2008 Next Month
S M T W T F S
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      
home | Articles | Components of Forex Trading
 

Components of Forex Trading

What are the basics of Forex trading?

  • The word FOREX is derived from the words Foreign Exchange and is the largest financial market in the world.
  • Foreign Exchange is literally the simultaneous buying of one currency and selling of another.

  • The Forex market is unique to other markets in that it is open 24 hrs per day.

  • Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then to London, and finally to New York.

Below is a list with the most liquid of these currencies referred to as the majors.
  • USD = U.S. dollar
  • JPY = Japanese yen
  • EUR = Euro
  • GBP = British pound
  • CHF = Swiss franc
  • CAD = Canadian dollar
  • AUD = Australian dollar

Forex operates by currencies trading in pairs.

Currency pair = two currencies that make up an exchange rate. In a currency pair there is a base currency and a quote currency. The base currency is the first currency in the pair and the quote currency is the second currency in the pair. One currency is bought and the other is sold.

Example 1:

Euro/U.S. dollar is represented as (EUR/USD). If a quote for EUR/USD is 1.23, it simply means that 1 euro is equal to 1.23 U.S. dollars.

Non-USD Base Currency Quote

EUR/USD 1.2815/18
Bid Ask

In this example, if you sell 1 Euro, you will buy US$ 1.2815. If you want to buy Euros and sell dollars, you will pay 1.2818 Euro for US $1

* The base currency is represented in blue and the quote currency is represented in red.

*The bid price is displayed on the left side and is the price that you can sell the base currency.

*The ask price is displayed on the right side and is the price that you can buy the base currency.

Example 2:

U.S. dollar/Japanese yen is represented as (USD/JPY). A quote for the USD/JPY at 109.50 simply means that 1 U.S. dollar is equal to 109.50 Japanese yen.

USD Base Currency Quote
USD/JPY 109.50/55
Bid Ask

In this example, if you 'hit the bid' you will sell US $1 and buy 109.50 Yen. If you want to buy dollars and sell Yen, you will 'lift the offer' and pay 109.55 Yen for US$ 1

Forex markets move in what are called pips.

A pip (price interest point) is the smallest unit of price for any foreign currency.

  • EUR/USD trading from 1.2300 to 1.2301 = a gain of 1 pip
  • USD/JPY trading from 108.01 to 108.09 = a gain of 8 pips
  • GBP/USD trading from 1.8302 to 1.8311 = a gain of 9 pips
  • EUR/USD trading from 1.2300 to 1.2401 = a gain of 101 pips
A full one-cent move in the currency is equal to 100 pips.

How to calculate a pip value:

  • (One pip, including decimal point/current exchange rate) X (notional amount)
  • For the EUR/USD this translates into: (.0001/1.2935) X (E 100,000) = Euro 7.73096
  • But, we want the pip value in U.S. dollars, not euro, so we go one step further: 7.73096 X current exchange rate (1.2930) = $10.00 per pip.
What this boils down to is this -any Forex contracts that end in USD are worth $10 per pip, or $1,000 for a full one-cent move (100 pips). The euro, for example, moves in the range of 80 to 150 pips per day. This $10 per pip calculation would include the euro (EUR/USD), pound (GBP/USD), etc.



Get Free Futures and Forex Trading Videos
Recent Forum Posts
· What Time Do You Generally Post the Video?
· Justin - futures v pairs
· Application of Analysis to Trades
· Backposted Last Week's Videos
· More Delays
· Site back up
· Sound Issue w/Tuesday's video
· Question re: Elliot Wave Books
· Sound Problems with today's video
· No Sound on Tuesday's Video
· NO VIDEO FOR FRIDAY AND MONDAY
· Question re: Mentoring
· Justin, Peak Trading hours
· MA Period of RSI
· Chicago Seminar Attendees
Search Discussion

*Unique experiences and past performances do not guarantee future results! Please click here
 for full disclosure.

Here's what our members are saying ...

Guys and Gals you are doing an amazing job, thank you for providing quality service. There is a lot of rubbish out there and you guys have really made the difference in my trading, I see the light to financial freedom is coming closer everyday.

Wayne
11/25/07



I never thought I could pull it off, but your expertise made it possible. John thanks again for guiding me through the Foreign Exchange Market.

Quoc N.
8/15/07



The Forex newsletter is the best! I found your strategy of putting all the information together to be incredibly helpful. I wish I had known about your services sooner.

Lisa
6/12/07



John your book, Mastering the Trade is an excellent resource for learning how to trade. Your piece on "How to Hedge Life" is pure genius. You truly have a unique way of looking at the market.

Greg O.
5/21/07