successful currency trading

Forex 101 - A Primer On Profitably Trading Foreign Currency

Foreign currency trading, or forex, has exploded in popularity in recent years as the proliferation of Internet access has brought it to the retail investor. Prior to the 1990s, before everyone had Internet access, it was reserved for the world's central banks and the trading desks of investment banks and hedge funds. Now anyone can participate in the world's largest, most liquid financial market. And when we say large, we may be understating the situation. By some estimates, more than $2 trillion a day changes hands in the foreign currency exchange market, which is more than all of the world's stock and bond markets COMBINED. Let's take a look at some of the basics of this lucrative market.
Open All Day With Plenty of Pairs To Trade
Part of the allure of the foreign currency exchange market is that it is open 24 hours a day. This means that you can keep your day job and do some forex trading when you get home in the evening. Actually, U.S. traders can start trading as early as Sunday when the Tokyo market opens at 4 PM Pacific time. Then the London session picks up the slack when Tokyo and the other Asian markets close. The New York session opens 8 AM Eastern time and there are four hours of overlap between New York and London.
There are eight currencies that make up the andquot;majors.andquot; They are the U.S. dollar, the Euro, the Japanese yen, the British pound, the Swiss franc and the dollars of Australia, Canada and New Zealand. The eight major pairs that novice traders should focus on are U.S Dollars (USD) v. Euros (EUR/USD), the yen (USD/JPY), the pound (GBP/USD), the franc (USD/CHF), the Canadian dollar (USD/CAD), the Aussie dollar (AUD/USD), the New Zealand dollar (NZD/USD) as well as the Euro/yen (EUR/JPY).
Best Time Of Day To Trade, Most Traded Pairs
More than 86% of all forex trades involve the US dollar and 37% involve the Euro. These two currencies are by far the most traded, far outpacing the yen (16.5% of all trades) and the pound (15% of all trades). The EUR/USD is the most traded pair and the USD/JPY is next.
Just because this market is open 24 hours a day doesn't mean that there are great trading opportunities during every hour of every day. If you choose to trade the Tokyo session, be careful, because this session has the lowest dollar volume. Focus your efforts on the beginning of the session and the close. The London session is typically the most active and volatile of the three sessions, presenting traders with great opportunities early in the session and at the close, but perhaps the best time of day to trade forex is during the overlap between the middle of London's session and the New York open.
More Forex Basics
A lot of rookie forex traders don't realize that when they enter a pair trade they are simultaneously buying and selling short the currencies in the pair. For example, if you buy the EUR/USD pair, you want the euro to increase against the dollar or for the dollar to fall.
Another thing to remember about forex trading is how highly leveraged the market is. If you're a retail daytrader of stocks, you get four-to-one leverage. If you deposit $25,000 into your trading account, you get $100,000 to trade with. Forex brokers, on the other hand, extend leverage of at least 50:1 and some as much as 100:1. It's important to remember that while this increases your profit potential, it also exposes you to potentially large losses. This is why checking out a mini or andquot;microandquot; forex account is a good idea for new traders.