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Forex Trading Review"

If you've been following along so far you should have a good understanding of the basics of forex trading. You should have a good handle on pips, lots, exchange rates, and what the trading spread is. You should also know a bit about forex brokers as well as trading margins and leverage.

You should also understand that all forex trading is based on the idea that since exchange rates fluctuate you can make a profit by buying a currency at one rate and selling it when its value increases, or by selling it and buying back more when the value decreases. You also know that nobody's perfect and everyone loses money sometimes-- good forex traders just make more
than they lose.

Here's a quick glossary of some of the more important things we've covered:

[hidepost]Pip The smallest unit of value: the last significant figure when an exchange rate is quoted. It's also what you normally use to follow movement and measure your profit and loss. It's 0.01 for the JPY and 0.0001 for all other currencies. The pip is your friend.

Lot The smallest unit of a trade: different account sizes usually come with different lot sizes. Two common lot sizes are $100,000 for a standard lot, and $10,000 for a mini lot.

Margin The amount of collateral you have to put up to borrow more money for a trade than you have. Usually expressed as a percentage, it's typically in the range of 1-2%.

Leverage Leverage is the ratio of how much currency you're trading expressed against the amount you've actually risked. Common ratios are on the order of 100:1.

Currency Pairs The basis behind every trade; a currency pair consists of the currency you're buying or selling, and the currency you're buying or selling it with. The first currency listed is the base (the one you're buying or selling) and the second the counter (the one you're buying or selling the base with.) The following are the four main currency pairs:

EUR/USD
USD/JPY
GBP/USD
USD/CHF

Major Currencies These eight currencies are used for the majority of all trades in the global forex market. You need a forex broker who handles the majority if not all of these currencies. If they don't handle at least the top five you need another broker.

Bid The exchange rate you pay when selling one currency for another.  It is always lower than the amount you would pay to buy that currency.

Ask The exchange rate you pay when buying one currency with another.  This one is always higher than the one you would pay to sell that currency.

Spread Also known as the bid-ask spread, the trading spread is the difference
between the two exchange rates. It's shown on the graphic below. It's also where the forex broker makes their money.

Broker The broker is your intermediary to the forex market. They handle your account and all your forex trades. They're also the one who loans you money when you're trading on the margin; and the one who gets the trading spread.

Demo Account This is what you should start trading on; don't jump in with real money. Start with a demo account to learn the ropes. It will give you hands-on experience before you put yourself in a position to lose money.

Mini Account This is the smallest account most forex brokers will let you have that involves real money. A mini account can be opened at some brokers with as little as $250, but we recommend you start with at least
$1,000.

Standard Account This one's the next step up from a mini account, and you should have at least $10,000 to trade before you open a standard account. This is the larger account type and it's best to save this one until you've made more money and have more experience trading.

Margin Call A margin call is what happens when your forex broker closes your open trades because your losses on a position have exceeded your available margin. It's a way to protect both of you from excessive losses.  You may not like it when it happens to you, but it beats the alternative.

Order This one's pretty simple; it's a request to initiate a trade at either a specific time or when a specific price is reached. It can be as simple as buy now, or as complicated as sell if the GBP drops below 1.8564 or if it reaches 2.1000.

Exchange Rate Usually expressed as a decimal fraction, this is the amount of one currency that's required to purchase one unit of another.  All forex trading is based on the idea that these rates change over time.

Base Currency When you consider a currency pair, this is the one that's listed first. It's also the 1 in the exchange rate, and the one that you are buying or selling to open a position.

Quote Currency This is the other currency, the one listed second, and the one where you expect the value to change in relation to the other one. When you see an exchange rate listed as 1.3064 or 0.8742 that's the quote currency.

Now that we've had a quick refresher on the basics, it's time to compare the forex market to some of the other markets out there and see why we believe forex is the best market out there. The two main competitors to the forex market are the futures and stock markets. Let's start by looking at the advantages of forex over both, then move on to treating them individually.

Continue to Forex Market vs. Others Now...

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