Forex Trading Basics
All Currency Trades involve the Buying of one Currency and the Selling of another, Simultaneously. Currency Quotes are given as Exchange Rates; That is, the Value of One currency Relative to Another. The relative Supply and Demand of both Currencies will Determine the Value of the Exchange Rate.
The Foreign exchange market is a large, growing and liquid financial market that operates 24 hours a day. It is not a market in the traditional sense because there is no central trading location or “exchange". Most of the trading is conducted by telephone or through electronic trading networks. The primary market for currencies is the interbank market where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates.
Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For example, for trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security. In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 1%, in the underlying value of your trade will result in a 100% profit or loss on your deposit.
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