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The world of forex trading differs considerably from trading of other financial instruments and commodities. Forex trading is considerably different from stock, bonds and futures trading. Understanding the basics of the market is extremely important for a trader to learn from the market.
The Biggest Financial Market: The daily trading amount of the currencies market exceeds 4 trillion US dollars and by far it's the largest financial market exists in the known universe. The main players of the market are banks including central banks. They execute most of the big transactions from the market. The retail traders contribute a small part of the market, however the contribution is increasing swiftly through the years due to the increasing popularity of forex trading.
Twenty-four hours a day Trading in Sessions: The planet forex trading market is open 24 hours a day from Sunday evening to Friday evening GMT. However the transaction volume in intraday trades show great variations because there are three major trading sessions as Asian session, European session and North American or US session. There is an overlapping of Asian and European sessions and also European and US sessions where the trading volumes can be very high. And, there's a considerable gap between US session close and also the start of Asian session where the trading volumes can be quite low. The currencies of nations in the particular region are most traded when the regional session is open.
Over-The-Counter Trading and Currency Pairs: Currencies are traded in pairs. One can buy a currency by selling another. The cost relation between the two currencies may be the exchange rate or even the price of the happy couple and it is priced up to the fourth decimal point. The smallest price change easy to some is known as pip and it generally equals 1/100 of 1% of the exchange rate. The trades are executed over-the-counter meaning directly between your buyer and seller; and there are no centralized exchanges or regulatory bodies for forex currency trading.
The Three Kinds of Lots and their effects on trading: Forex trades are performed in lots. Presently there are three types of lots open to retail traders as standard lot, mini lot and micro lot. A typical lot may be the position size that equals $100000, a mini lot equals $10000 and a micro lot equals $1000. When trading with standard lots, a pip difference in price can cause $10 profit or loss. Similarly with mini lots exactly the same may cause $1 change and with micro lots a ten cent ($0.10) change. Also it should be noted the availability of the kinds of lots varies with broker since many brokers only offer standard and mini accounts.
The Most Popular Currencies: Although there are hundreds of currency pairs available for trading, most volume is contributed by only 18 currency pairs comprised of eight most widely used currencies. These currencies include USD (US Dollar), EUR (Euro), GBP (British Pound), JPY (Japanese Yen), CHF (Swiss Franc), CAD (Canadian Dollar), NZD (Nz Dollar) and AUD (Australian Dollar). Retails traders also prefer these currencies because they are most liquid.