Never miss a great news story! Get instant notifications from Economic Times Allow Not now. Choose your reason below and click on the Report button. This will alert our moderators to take action. Get instant notifications from Economic Times Allow Not now You can switch off notifications anytime using browser settings. Technicals Technical Chart Visualize Screener. NIFTY 50 10, Drag according to your convenience. As a child, I remember collecting coins and bank notes from my father, every time he would return from one of his trips abroad.
The colors, the pictures, the name and sign of the currency - it would transport me to a different world - a place where I saw myself traveling to different countries around the world. As I grew, I did travel to many different countries and my collection of coins and bank notes of different currencies kept growing. This interest in collecting different currencies soon developed into studying the connection between one currency with another and very soon into the world of trading foreign currency or FOREX as it is called.
My interest led me to www. Last week, as I was sorting through my collection of coins; my daughter asked me to explain to her what Forex Trading was all about.
Before I could launch myself into talking about the intricacies of Forex trading, she smiled and said, "Dad, start from the beginning and keep it simple. I have absolutely no idea about this but would like to know and understand why it fascinates you so much. What is Forex Trading? The term 'Forex' stands for Foreign Exchange. Forex trading in simple terms is the trading in currencies from different countries against each other; for example the US Dollar against the Euro. Anyone who deals with a foreign country - be it a holiday there, or wanting to purchase something from that country or pay for a service, generally requires the currency of that country to do so.
Of course, I could pay in US Dollars too, as it is accepted almost everywhere, but that is a different story. One of the most fascinating things about this market - there is no brick and mortar marketplace for Forex trading.
Every transaction is done electronically over-the-counter. Unlike the stock exchange, the Forex market remains open round the clock with currencies traded across every time zone, five days every week. I selected one from ForexSQ and have been trading since then. However, Forex trading is different from exchanging money at the Foreign Exchange outlets.
There is much more to Forex trading than just exchanging one currency for another. The two currencies that have the highest trading volume on the Forex market are the US Dollar and the Euro - but, other currencies are traded as well.
One of the biggest advantages of Forex trading is the 'leverage' that is provided to me by my broker. Unlike the stock market or the futures market, where my broker offers me a leverage of 2: I forget to tell you, standard Forex trading is done in 'lots' with each lot representing , units of currency. Now, a leverage of The price of any currency is always versus anther currency - for example the US Dollar versus the Euro.
The two currencies in the quote are known as a pair which consists of a 'base' currency and a 'counter' currency. So buying and selling a currency pair is based on whether you think the base currency will appreciate or depreciate against the counter currency. One interesting aspect - you will find most currency pairs quoted to 5 decimal points.
Now, obviously, you do not deal in such small denominations when using money to buy something. However, in the Forex market, a change from the 4th decimal point in price is known as a 'pip' which stands for Percentage in Points.
That roughly covers the basics of Forex terms that are used in the market. Actually, there are three ways in which individuals, corporate and institutions trade Forex - the spot market, the forwards market and the futures market. The spot market witnesses the largest quantum of trades - that is because both the futures and forward markets are based on the underlying real asset i. However, this was not always the case.
The futures market was more favored in the past because it was available for a longer period of time for individual investors. But, now with electronic trading, the spot market surpasses all others. However, companies and institutions prefer the futures and forward markets more than individual investors, as they need to hedge their foreign exchange risks.
Oh, sorry, I need to tell you the difference between spot, forward and future trades. The spot market is where I buy or sell currencies according to the current price - which is determined by the demand and supply for that particular currency. Well, when I buy or sell a currency and the deal is finalized, it's known as a 'spot deal'. The biggest difference between the spot and the forward and futures trade is that while the spot trade deals in actual currencies, the future and forwards trade do not.
These markets trade in 'contracts' - which represents a claim to a specific currency, a specific price per unit and a future date of settlement of that trade. The forward market witnesses 'contracts' with terms of the agreement decided between the two parties who buy or sell them over-the-counter. The 'futures contracts' that are brought or sold in the futures market is based upon a standard size and settlement date.
The futures contracts have specific details, such as, settlement and delivery dates, number of units, minimum price increments etc. These are traded on public commodities markets with the exchange acting as a counterpart to the trader, i.
I suddenly realized that I was getting too much into the details and said, "There is much more to understand here, but that would mean going into far more detail than you would want. I did and haven't changed since then.
Actually, when you asked me to tell you about Forex, I was going to suggest that you go through the site yourself. Not only does the site contain basic information for those who have absolutely no idea or knowledge about Forex and Forex trading, it also features detailed information on Forex trading, knowledge and information based articles, news from the Forex, Equity and Commodity markets, information and links to brokers, analysis of the various markets and financial news from around the world.
After spending a few weeks reading all I could about Forex trading, I signed up with a broker from their list and opened a Demo trading account. This actually helped me a lot, allowing me to practice Forex trading without any risk.
Once I was confident that I could manage a few small trades without risking too much, I opted for a live mini account with the same broker.
The process itself is rather simple and everything is online. I deposited some money into the account and started trading - and have been doing so ever since. Oh, they also have a list of the top Forex managed account service companies that lets you to invest in the Forex market - even if you have absolutely no knowledge about Forex. All you need to do is put up a small amount of margin money in your account and the broker takes care of all the trading and managing of the account for you.
I opened two accounts - one where I am trading on my own with the mini account and one where the broker trades and manages the mini account - sort of like spreading my risk. In a nut shell, this is one complete site for learning and trading - and I too have been recommending it to those who ask me.
My daughter looked at me for a few seconds and walked away, leaving me wondering as to what happened here. I saved this over the last one year from my pocket money. And I did make her some profits from the first trade that I did yesterday.
Like father, like daughter - she too has started collecting currency - except that her collection is for spending. Investors made a killing in these stks.
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