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The Basic Of Forex Trading

The Basic Of Forex Trading is one of the finest articles about Forex Trading. There are numerous posts on the net that discuss Forex Trading, The Basic Of Forex Trading certainly one of which we suggest for you. Preferably the articles that individuals share under can be of use, increase information and be considered a option for you.

The Different Currencies Traded

The seven most liquid currency pairs in the world of FOREX are:

o EUR/USD (euro/dollar)
o USD/JPY (dollar/Japanese yen)
o GBP/USD (British pound/dollar)
o USD/CHF (dollar/Swiss franc)

They are also known as the four majors. Most traders concentrate on those pairs only to grab some profit from the market.

The other currencies that stand out from the rest are the three commodity pairs:

o AUD/USD (Australian dollar/dollar)
o USD/CAD (dollar/Canadian dollar)
o NZD/USD (New Zealand dollar/dollar)

These currency pairs, along with the EUR/JPY, GBP/JPY and EUR/GBP contributes to more than 95% of all speculative trading in the FOREX market. On the market, only 18 pairs and crosses are actively traded. This market is definitely far more concentrated than the stock

You may come across some retail traders dealing only with exotic currencies. The Czech koruna is an example of an exotic currency.

Carry Trades

It is a particular type of trade used by both large hedge funds and small retail speculators. They are very popular in the FOREX TRADING DOMAIN. The concept of carry trade takes into consideration the fact that every currency in the world is influenced by interest rate which are set by the central banks of these countries.

The whole idea behind the carry trade is quite simple. You just buy the currency with a high interest rate and use the currency with the lower interest to finance that purchase. Very simple indeed you say, but make sure that market is a trending one or else your profit from interest rate differentials might not be enough to offset the capital losses.

The pair that was greatly popular among traders was the NZD/JPY. This is due to the fact that the New Zealand economy was doing extremely well. The interest rate not so long ago in New Zealand was 7.50% compared to a 0.50% rate in Japan. Thus, if you bought NZD/JPY you would have collected a staggering 700 basis point in yield alone.
Impressive right!!

However due care must be taken when jumping in those king of trades. As said, this kind of trading only works if the currency you are buying is in a definite trend. Stay away when the market is choppy as the decline may be severe when carry trade unwinds. This will definitely blow you account away in no time.
The best time for you to position in such a trade would be at the beginning of the rate tightening cycle. This will allow you to ride the move as interest rate differentials increase.

FOREX Jargon

Common terms used by traders in reference to the different currencies.

o Aussie – nickname for the Australian dollar
o Cable – nickname for the British pound
o Greenback, buck – nicknames for the U.S. dollar
o Kiwi – nickname for the New Zealand dollar
o Loonie – nickname for the Canadian dollar
o Swissie – nickname for the Swiss franc

Best of luck in your trading

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