Lesser Known Facts That Can Lead To Your Personal Wealth
Global forex trading is a lesser known facet of money making or wealth creation among the general population. You will no doubt hear about stock markets and share prices daily and also about oil prices and other commodities, but when it comes to forex trading, there is much less publicity on this compared to stock market trading and futures. However, it is a fact that the global forex trading market actually dwarfs the stock markets and even the commodities market.
At any one time, more than $2 trillion of currencies are transacted every day on the global forex market.
What is helping forex market to reach that distinction of being the largest tradeable market is that forex is tradeable at any time of the day for every day- 24/7 ! Compared to stocks and shares or commodity markets that have specific opening and ending trading times. By necessity, forex markets are available for trading anytime since price of currencies changes and fluctuates everytime. This makes it possible for the trader who has the acumen to profit from these price fluctuations.
Another characteristic of forex trading that can catapult you into wealth is the application of the system of leverage. In wealth creation, leverage accelerates your ability to create wealth from a small amount. Many people are attracted to trading stocks and shares on margin because they can get leverage on a margin account. For example, by margining your stocks and shares, you can get a leverage of 50% to 75% of your stocks so that if you have $100,000 worth of stocks and shares, you may be able to get additional margin to trade worth $50,000 to $75,000. But compared to forex margin accounts where you can get leverage of 20 times to 50 times, which is common and even up to 100% margin in some special cases.
Leverage is a main key to forex trading wealth, and is a powerful tool that can cuts both ways. You will need a good education in forex trading to gain the edge and be profitable consistently. Otherwise this immense leverage can work against you and gets you wiped off and even move into bankruptcy even faster than it can help you become a millionaire.
It is this leverage that draws people to forex trading, giving it a tint of speculative activity. While one cannot deny that there are many speculators in the forex market, there are many traders who are able to extract continuous and consistent profits trading the forex market for a living. This group of people constitute 10% of the forex traders, and the key element with them is their ability to take advantage of the price movements either as day traders, swing traders or position traders
Orders and Positions
Orders and PositionsWhen you want to open a position you need to place an "entry" order. If and when the entry order executes, the position becomes "open" and starts its life on the market. At one point in time, you will place an "exit" order to "close" the position. A position can be "long" (entry order is to buy and exit order is to sell an instrument) or "short" (entry order is to sell and exit order is to buy an instrument).
At the point when you place your entry order, you need to define price level at which you want to buy or sell certain instrument. You also need to specify type of the order and quantity of the instrument you want to trade. There are 3 order types:
Market OrderPlacing a market order means that you will buy at your broker's current "ask" (or "offer") price, or sell at your broker's current "bid" price, whatever that price currently is. For example, suppose you are buying EUR/USD. The current market, as quoted by your broker is 1.2934 / 1.2938. This means that your broker is willing to buy EUR/USD from you at 1.2934, and sell it to you at 1.2938.
Stop Order Initiating a trade with a stop order means that you will only open a position if the market moves in the direction you are anticipating. For example, if USD/JPY is currently 108.72 and you believe it will move higher, you could place a stop order to buy at 108.82. This means that the order will only be executed if the market moves up to 108.82. The advantage is that if you are wrong and the market moves straight down, you will not have bought (because 108.82 will never have been reached). The disadvantage is that 108.82 is clearly a less attractive rate at which to buy than 108.72. Opening a position with a stop order is usually appropriate if you wish to trade only with strong market momentum in a particular direction.
Limit OrderA limit order is an order to buy below the current price, or sell above the current price. For example, if EUR/USD is trading at 1.2952 / 56 and you believe the market will rise, you could place a limit order to buy at 1.2945. If executed, this will give you a long position in EUR/USD at 1.2945, which is 11 pips better than if you had just bought EUR/USD with a market order. The disadvantage of the limit order is that if EUR/USD moves straight up from 1.2952 / 56, your limit at 1.2945 will never be filled and you will miss out on the profit opportunity even though your view on the direction of EUR/USD was correct. Opening a position with a limit order is usually appropriate if you believe that the market will remain in a range before moving in your anticipated direction, allowing the order to be filled first.
For both entry and exits orders you can specify price levels at which you want them to be executed. You have to specify entry levels when you place you entry order, while most brokers would allow you to specify exit levels at any time.
Market Conventions
Market ConventionsMarket conventions are rules and standards imposed by a governing body. In case of decentralized forex market these conventions might differ due to many national regulators (FSA, FSC, CFTC, NFA, BCSC, etc.). Since there is no central governing body that sets forex market rules and standards, we will reference only these that are universal.
Quoting Conventions
The first currency in the pair is referred to as the base currency, and the second currency is the counter or quote currency. The U.S Dollar is usually the base currency for quotes, and includes USD/JPY, USD/CHF, and USD/CAD. The exceptions are the Euro (EUR), Great Britain Pound (GBP), and Australian Dollar (AUD). As with all financial products, forex quotes include a "bid" and "ask", which is more often called "offer" in the forex market. The bid is the price at which a forex market maker is willing to buy (and you can sell) the base currency in exchange for the counter currency. The offer is the price at which a forex market maker will sell (and you can buy) the base currency in exchange for the counter currency. The difference between the bid and the offer price is referred to as the spread
